Many financial institutions for the decade after the Great Recession looked at the prepaid space as a hassle, with limited revenue streams combined with new regulations designed to protect consumers. In recent years, however, those financial institutions and their partners who are issuing prepaid today are far more mature in their understanding of the regulatory environment that exists, with more industry and staffing resources to manage those expectations as well, Advisor in Aite-Novarica’s Retail Banking & Payments practice Alvarez-Evangelista observes. Thus, they have no excuse not to tap the expanded prepaid potential.
Banks and credit unions can look to how fintechs have utilize prepaid technology to innovate and do the same themselves.
Opportunity knocks:
Three big use cases in banking facilitated by prepaid cards: virtual cards, digital wallets and early wage access.
One area for prepaid expansion is in business banking. Banks can use prepaid payment rails to help a treasury client to conduct payments and facilitate accounts payable processes using virtual prepaid cards, Alvarez-Evangelista states. This eliminates paperwork and manual processes greatly for both the business and the bank.
Juniper’s research also touts the benefit of using prepaid technology to issue virtual cards.
“Virtual cards have vast potential within the prepaid cards space,” the firm states. “To start with, they can lower costs. By offering a virtual [card] with no physical option, issuance costs can be lower. This will be useful across prepaid card use cases where scale is important, such as bulk disbursement of government benefits for example, or in a corporate setting.”
Prepaid cards can also be implemented in digital wallets, Juniper noted.
“By offering digital issuance via a digital wallet and top-ups in this way too, potential theft is no longer an issue,” Juniper maintains. “Indeed, this reduces the barriers to entry and significantly decreases the costs of prepaid issuance and management.”
Prepaid technology can also be used by banks to enable early wage access services to customers, Alvarez-Evangelista states. Such services, offered by fintechs like Chime and others, have proven to be popular with a growing segment of consumers.
“Prepaid is not just general-purpose reloadable card or gift cards anymore,” says Alvarez-Evangelista. “It can be used for literally almost anything else.”
- Editor’s Note: This article was originally published on May 4, 2022. All content © 2022 by The Financial Brand and may not be reproduced by any means without permission.
