America will soon see a massive shift of money to mobile platforms. And prepaid-debit cards may prove to be the catalyst. Some of the smarter companies in the finance world see the combined power of mobile and prepaid as the key to winning new markets and attracting younger customers.

In 2011, more than $409 billion dollars was uploaded to prepaid debit cards, according to Aite Group. Prepaid debit is the fastest growing method of payment at a 35% lift. In 2010 alone, more than $65 billion worth of transactions were proceed.

Plastic is still the main method of interaction. But that’s changing. Mobile payments are growing and will accelerate the overall growth of prepaid debit. Let’s review why:

First off, mobile payments are fundamentally changing how we view a purchase transaction. The power of mobile payments is their ability to easily blur the line between a physical transaction and a virtual transaction. For example, I can buy movie tickets at the theater with my card, or on my way to the theater with the Fandango app on my iPhone. In either case,  I’m using the same method of payment — my Chase checking account.

This is just one example of how our phones disconnect us from the institutions that hold our money — and levels the playing field for banks, credit unions, prepaid and every other payment platform.

In 2011, comScore found that 67% of customers indicated they would make a mobile purchase of real world goods, with 47% using their smartphone to make purchases in December.

Maybe that’s why mobile wallets have captured the attention of today’s leading tech companies. There’s Google Wallet, which let’s you link your Citi credit card or use any of your existing credit cards to fund a Google branded prepaid card. Next is ISIS, the joint initiative by major mobile carriers to offer tap-and-pay functionality. Then there is Movenbank, the mobile-payment-only startup that plans to revolutions mobile banking.

PayPal may be using its new prepaid card as an intermediate step to push consumers to use their mobile app, where customers processed $4 billion last year.

Let’s not forget about Apple’s iTunes platform. Used now only for songs, movies and apps, it could easily become the payment method for any of the hundred different purchases we make each month.

And finally, there’s Facebook. I expect the social-media giant to become a big player in this space, using its credits and mobile apps to change our purchase habits.

Starbucks leads by example, AmEx running up the rear

When Starbucks decided to create a virtual gift card app, no one expected the adoption rate to be so high. According to the company, the mobile gift card accounts for 25 percent of all in-store purchases. In 2011, customers conducted 26 million mobile transactions (2.9 million in December) and loaded more than $100 million in funds onto the app.

Although Starbucks is not a bank, neither are large retailers such as Target, which offers their own forms of prepaid debit cards and can easily adopt the app model.

Clearly, the banking industry is moving in this direction:

Many mobile banking solutions are coming down the pike, so the phone-based account may replace the piece of plastic before you know it. Furthermore, while banks are raising fees and balance requirements for traditional checking accounts, they are creating new web-based base bones accounts that could suit the prepaid card demographic. – Reuters Blog, Feb 2011.

Gen Y and AmEx

In a space dominated by tech and new-style non-bank financial service providers, there is one 130-year-old company that seems to understand this movement — American Express. Over the past year, American Express has launched their own prepaid card, purchased PayPal competitor Serve and created partnerships with social networks Foursquare and Facebook to offer real world deals when you sync your Amex card.

American Express, it seems, is shifting away from its historical business (charge cards) and adopting new tools to reach a new audience — an audience that is often revolted by the traditional banking model and is ready for disruption in the financial space.

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