Grasping the Benefits of Prepaid: A Battle Plan for Banks

New research from Mercator Advisory Group identifies how low-and moderate-income consumers utilize open-loop prepaid and recommends a market entry plan for retail financial institutions.

Boston, MA -- Funds loaded on prepaid financial services (PFS) products are growing 42 percent annually, suggesting that their primary users, low- and moderate income (LMI) consumers, believe these products deliver outstanding value for the cost. In many cases, LMI consumers believe prepaid delivers more value than the services provided by traditional retail financial institutions. Because of the economy, the LMI market is growing at the same time that government regulations have made low-balance demand deposit accounts unprofitable for retail financial institutions.

Mercator Advisory Group's new report, Grasping the Benefits of Prepaid Financial Services: A Battle Plan for Banks, identifies the primary use cases adopted by consumers who purchase PFS products and analyzes how these products deliver superior liquidity and convenience to cardholders. The report suggests ways that retail financial institutions can compete and recommends a market entry approach that reduces the costs associated with introducing a prepaid financial services product.

Highlights of the report include:

Evidence that liquidity and convenience trump cost for users of prepaid cards

Why it is impossible for retail financial institutions to offer the same level of liquidity and convenience as PFS products by expanding branches and utilizing existing demand deposit account pricing structures

The ways financial institutions can quantify the amount of money their account holders are moving from their checking accounts today to fund prepaid products

The two primary use cases driving prepaid product growth today, one easily addressed and the other demanding new strategy and a greater investment in resources

"Financial institutions can't utilize the existing retail outlet model to successfully compete in the LMI market; it simply isn't sustainable," says Tim Sloane, director of Mercator Advisory Group's Prepaid Advisory Service and author of the report. "When financial institutions better understand how PFS products address the liquidity and convenience requirement of the LMI market, they will also better understand the pricing models prepaid suppliers employ.

One of the nine exhibits in this report:

This report is 23 pages long with nine exhibits.

Companies mentioned in the report include: 7-Eleven, AccountNow, Allpoint, American Express, Bank of America, Blackhawk, Chase, Chexar, Citi, CSP, FIS, Green Dot, InComm, K-Mart, Kroger, MoneyPass, NetSpend, PayPal, Quick Stop Markets, RadioShack, Regions Bank, Ria, Rite Aid, U.S. Bank, UniRush, Walgreens, Walmart, Wells Fargo, and Western Union.

Members of Mercator Advisory Group’s Prepaid Advisory Service have access to this report as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits.

Please visit us online at www.mercatoradvisorygroup.com.

For more information and media inquiries, please call Mercator Advisory Group's main line: (781) 419-1700, send E-mail to info@mercatoradvisorygroup.com.

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About Mercator Advisory Group
Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also the publisher of the online payments and banking news and information portal PaymentsJournal.com