Experts predict the compound annual growth rate for the prepaid market from 2021 to 2022 will reach 10.6% worldwide, according to The Business Research Company. It is expected to keep growing at a rate of 9.7%, reaching $22.11 billion in 2026. The speed and convenience of digital technology along with growing consumer concerns about privacy and fraud lead this growth. To be relevant to the needs of members and potential members, credit unions must be aware of the relationship between these trends.
Who is using prepaid cards? An increasing number of millennials, freelancers, and businesses are finding prepaid cards an attractive solution to their payment needs. According to Edison Research, nearly a quarter of Americans engage in some type of freelance work. Many prefer to receive payment through prepaid cards that allow them to receive compensation faster than traditional methods and don’t require them to give personal account details.
Other markets are also increasingly drawn to prepaid cards. Businesses utilize virtual prepaid cards for online payments and for budgeting department expenditures. Gift cards are also a well-received employee incentive. Millennials, despite having a large collective spending power, are highly budget-focused and like the control that prepaid cards give them over their spending. Prepaid cards are also popular among the underserved, giving credit unions an opportunity to reach out to this market.
Digital technology has done much to enhance the speed and security of prepaid cards. Virtual cards are making issuance even faster and more cost-effective. Tokenization adds another level of security and ease of use. Randomly generated tokens are stored by stores and e-commerce sites while cardholders’ private details remain in one secure database. This technology also allows shoppers to easily switch between online and in-person shopping through mobile wallets.
For credit unions looking to build their prepaid programs, this digital technology is vital to relevance and growth. In 2021, nearly 45% of e-commerce transactions used mobile payment, and experts are expecting that a third of all point-of-sale transactions will be made with mobile wallets by 2024 (Trading Platforms).
This means credit unions need to have a way to ensure their prepaid cards work smoothly with as many mobile wallet providers as possible. One way to accomplish this is through a robust prepaid app that makes pushing your prepaid cards to mobile wallets quick and seamless. This convenience—combined with other features that allow cardholders to easily check their balances and offer added security, like identity verification and card controls—helps a credit union’s prepaid card compete in the marketplace.
Prepaid cards and technology can be a powerful way for credit unions to connect with current members and reach out to new markets. The most effective use of prepaid cards will harness the advantages that technology offers to delight cardholders and compete in an increasingly digital world.
Libby Calderone is president and chief operating officer at Envisant.