The prepaid industry shows no signs of letting up. In fact, it should see substantial gains in market share over the coming years. According to a report by Packaged Facts, a market research firm, payment volume in prepaid is projected to rise by 22.4% this year alone “on the strength of almost 10 billion transactions.”
That’s about 33 transactions per American per year, which at least sounds impressive. Total payment volume in 2011 on prepaid debit cards topped $202 billion, according to Packaged Facts. For comparison, according to CreditCards.com, 2010 credit purchase volume on Visa alone was $809 billion. MasterCard’s credit purchase volume for the same year was $479 billion. Between the two networks, there were approximately 15 billion credit transactions in 2010.
It stands to reason that credit transactions might have a higher dollar amount per transaction. Consumers like to use credit cards to finance larger purchases. Prepaid debit cards on the other hand, are much better suited to small transactions.
Research has shown that many prepaid cards have become more attractive post-Dodd-Frank because of the effects that legislation had on free checking accounts. For some, prepaid cards are a cheap replacement for a checking account. For others, they provide a means of controlling spending in a way that credit cards cannot.
The cards also provide many underbanked consumers with access to electronic payments. Now paying bills online and carrying less cash is easier for those without a traditional banking relationship. About 18 percent of underbanked consumers use prepaid cards, according to a study by Javelin Strategy. For banks, prepaid cards offer a way to bring in younger consumers, who are understandably less than enamored with banks.
And as more established financial companies enter the prepaid market, costs have been driven down. If American Express charges virtually no fees for its prepaid debit card, why would someone buy a RushCard that potentially costs hundreds of dollars in annual fees?
The report seeks to answer a number of the questions that the growth in prepaid raises for the payments industry, in particular the tension between keeping fees low and profits high, and how the underbanked and Gen Y fit into prepaid’s growth potential. It is available for sale ($4,295!) here.