An Insight into The Global Prepaid Card Industry

Prepaid cards have been part of the payment industry for a long time, dating back to the 1970s, when they were used as gift cards. Although, the usage of prepaid cards gained momentum much later on. Users can recharge their prepaid cards over the counter. They can also be reloaded online through a store’s mobile application or website. Similar to gift cards, consumers can redeem prepaid cards at stores to pay for purchases or avail discount on a purchase.

Prepaid cards can be reloaded up to a certain value and used to pay for any activity, such as shopping, dining, or any other expense. Many consumers worldwide prefer a prepaid expense card as it is not directly connected to their bank account, nor do they have a credit limit. Thus, making prepaid expense cards safer than using debit cards or credit cards for online transactions, during trips, and/or at retail stores. Wherein there are chances of data theft, hacking, machine tampering which could put the money in their bank account at risk.

Prepaid cards are useful for various purposes, such as gifting, payroll processing, government benefit disbursement, healthcare reimbursements, consumer transit, etc. It is also useful for individuals who cannot open a bank account due to bad or low credit ratings.

With time, prepaid cards are evolving depending on the market’s and the consumers’ requirements, making it still a relevant form of payment.

In fact, the global prepaid card market is expected to grow from $12.99 billion in 2020 to $13.87 billion in 2021 at a compound annual growth rate (CAGR) of 6.8%.

So, what are the different types of prepaid cards currently available in the market, and who are the leading players?

Types of Prepaid Cards

Closed-Loop or Single Purpose Prepaid Card

Closed-loop or single-purpose prepaid cards are redeemable only at the retailer that issues them. Like a government benefit/disbursement card, health-reimbursement card, a particular store’s gift card, or a bus travel card, which only serves a specific purpose. For example, a bus transit prepaid card can only be used to pay for the bus fares.

Multi-Purpose or Open-Loop Prepaid Card

An “open-loop” card is a card that can be spent with different merchants. For example, a travel card, which can be loaded up to a certain value and used for paying at any retail outlet.  Open payment networks such as MasterCard or Visa are used to issue and redeem these cards. The card has the logo of either Mastercard or Visa mentioned on it. A Mastercard prepaid card is redeemable only at places that accept Mastercard.

The Global Prepaid Card Market

As mentioned above, market leaders expect the global prepaid card industry to reach $13.87 billion in 2021 and US$ 3.1 trillion by 2022.

The ease of adding funds, acceptance at various merchants/retailers, the ability to withdraw cash at ATMs, and several other uses of prepaid cards make it popular amongst consumers. Prepaid card service providers continue to innovate and add more value to prepaid cards in order to cater to consumers’ needs.

Currently, freelancers and millennials prefer prepaid cards over other forms of card payments. Prepaid cards ensure faster payments, are inexpensive, do not collect sensitive information, and also help prevent data theft or account-related fraud transactions which are possible in the case of bank-associated debit and credit cards. According to B&C Media, over 29 million U.S. millennials chose to have their paycheck loaded onto a prepaid card instead of a check. Prepaid cards also help them avoid overdraft fees, maintaining a minimum balance, high fees, etc.

Reasons for Millennials Choosing Prepaid Cards

In the U.S., Venmo, and Square provide physical and virtual prepaid debit cards that enable both in-person and online transactions.

Along with other forms of payments, such as Buy Now Pay Later, and mobile payments, prepaid cards also saw increased usage during the 2020 pandemic. Some of the main reasons for the surge in the usage of virtual prepaid cards being the inability to obtain a physical card due to social restrictions, and the increased online fraudulent activities which made credit cards and debit cards unsafe for carrying out online transactions.

Online consumers can use tools to generate new virtual card numbers. This further increases their online security if a merchant’s website suffers an attack from hackers.

Netspend reported that its virtual card spending rose 793% YOY during Q3 2020, and the number of virtual card transactions grew 458% YOY as well.

The UK Prepaid Card Industry

The U.K. prepaid card is a US $42.16 bn Industry.

In 2020, digital gift card and eVoucher sales grew by nearly 50% YOY in the UK due to the social distancing requirement and lockdowns which forced consumers to shop from their homes. Prepaid cards continue to enjoy high popularity in the UK with increasing utilization by retail customers for functions such as gifting, travel, transportation, and online shopping.

Prepaid cards are also witnessing high growth in the country due to increasing corporate adoption.

Furthermore, the UK Government is pushing for prepaid card use as well for benefit disbursements. Card issuers in the UK are focusing on designing prepaid products that meet the requirements of niche retail segments, such as international travelers, students, migrant workers, etc.

Major Players in the Prepaid Card Industry

Some of the well-known companies that deal in prepaid cards are:

• Bluebird Prepaid Card by American Express (US)
• Green Dot Card by Green Dot (US)
• NetSpend by TSYS (US)
• ChaseLiquid by JPMorgan Chase (US)
• Mango Prepaid Card by Mango Financial (US)
• Kaiku Card by Kaiku (US)
• Marqeta (UK)
• Revolut (UK)
• Cashplus (UK)

Companies are undertaking various strategic initiatives such as partnerships and collaborations, gaining significant popularity in the prepaid card market. They are collaborating with other market players offering prepaid cards with flexible credit limits and other offers to attract more consumers.

Increasing Use of Prepaid Card Processing Platform-as-a-Service Business Solution

With the increasing use of prepaid cards, many non-payment industry players are looking forward to stepping into this market. Companies like Apple, Amazon, Venmo, Square, and PayPal.

Building a prepaid card software solution from scratch can be expensive and time-consuming. Instead, companies considering venturing into the prepaid card market could look at obtaining a ‘prepaid-card-processing platform as a service’ from existing prepaid card processing companies as a white-label solution. These processing platform solution providers allow companies to issue their own prepaid cards without having to worry about the technicalities involved in the process of issuing a prepaid card.

For example, in 2020, MobiKwik, an Indian digital payment company, collaborated with American Express (Amex) card network to launch their first virtual prepaid payments card. Thus, making MobiKwik the first non-bank institution in India to issue cards.

Prepaid cards have a balance limit. Consumers do not need to connect them with their bank account which makes them extremely safe to use for transactions. Regardless, of whether it is an online or offline transaction. Even if the card is lost or stolen, the individual need not worry to the extent if it were a debit card or credit card with significant credit limits. Prepaid cards also allow consumers to budget and limit their monthly expenses. All these factors make prepaid cards an important form of payment, one that will continue to gain traction in the coming years.

If you are looking forward to adding physical or virtual prepaid cards payment solutions to your business or considering venturing into the prepaid card industry, Penser could be of help.

Penser is a fintech and payments specialist consulting firm, based in the UK. With experience working for clients in the digital payments, digital banking, and mobile payments sectors. We have some of the renowned companies as our clients.

Our services include:

• Conducting Commercial & Technical Due Diligence to guide business investment decisions
• Strategic Planning to drive growth and scale business
• Digital Transformation of businesses
• Assisting with restructuring and turnarounds to improve business operations and tackle financial challenges

Contact us at hello@penser.co.uk to learn how we can help you transform your business.