We’ve made it through the first quarter of 2016, and despite being held in suspense by the Consumer Financial Protection Bureau, the prepaid industry continues to move forward and innovate.
Regulators continued to make news for the prepaid industry in March by issuing new guidance about when banks need to put prepaid card holders through the full Customer Identification Process
required for all accountholders. The guidance caused a lot of discussion in the industry in part because it excluded some programs, including payroll cards where the only source of funds is the employer. Despite any possible exclusions, my non-lawyer view is that banks and program managers should treat all reloadable cards as though they need full CIP and gather name, date of birth, address, and identification number for each cardholders. There are benefits to knowing who your customers are regardless of what regulators require.
(The guidance can be found here: https://www.federalreserve.gov/newsevents/press/bcreg/20160321a.htm
The competitive landscape continued to evolve with Green Dot partnering with ride-sharing service Uber
to offer drivers debit cards. These drivers may have been the perfect target audience for prepaid cards, but Green Dot is making good use of its bank charter to compete for those drivers. At the same time, Starbucks has decided that open-loop prepaid cards
that allow cardholders to earn Starbucks Rewards will be its next gambit to win and keep customers. While only the outlines of the program are known at this point, it is clear they have a very different idea of who the prepaid customer could be than the traditional unbanked and underserved person.
Prepaid providers should consider how they compete with other payments types for customers and who their ideal customers are. Being competitively successful is not simply about competing with other prepaid cards for a specific demographic.
Towards the end of March, the All Payments Expo
was held in New Orleans. The conference has returned to having a strong focus on prepaid. The closed-loop crowd had a number of sessions around the developing gift card market. It can be tempting to dismiss closed-loop cards as a fully mature market, the development of secondary markets, redemption outside of issuers, and digital tie-ins make the market much more dynamic. It is interesting to note that a session on preventing gift card fraud was standing room only. When a relatively new company’s gift card manager asked for advice on preventing fraud in gift card programs, the panel largely demurred on trying to provide one-size fits all advice. However, once the session ended, many members of the audience approached that manager to continue the discussion. The informal exchange of ideas shows the need for industry professionals to stay in contact with each other to share information and ideas.
In that spirit, please reach out if you would like to discuss any of the information or ideas in this newsletter, or anything else about the prepaid industry. Stay tuned for future updates and information on the growth and development of open-loop and closed-loop prepaid. In the meantime, look for me at the Power of Prepaid
in Washington D.C. later this month.