Money laundering regulation on prepaid cards receives a major setback; US prepaid card GDV expected to reach US$ 885 billion

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Financial Crimes Enforcement Network (FinCEN) proposed money laundering regulation directed towards prepaid card usage, received major setback from the prepaid card industry. In 2011, US Treasury Department identified international money laundering racket and wanted to close the loophole that facilitated drug cartels to move large amount of cash through gift and prepaid cards.During Q3 2016, FinCEN proposed the regulation stating that cross border movement of money ranging between USD 10,000 and above should be reported to the government. However, it received major backlash from prepaid card service providers. The proposal was withdrawn for further rework and is expected to be re-proposed by 2017.

Prepaid cards havebeen actively used for drug trafficking and money laundering.In March 2013, FinCEN made a proposal of reforming Bank Secrecy Act. However, the proposal was withdrawn in November, 2014 as FinCen stated that it required further analysis and amendments. Similarly, in 2010, a proposal regarding control on prepaid cards was also removed.

Prepaid card industry has grown tremendously in US market in the past five years. The prepaid card market in Gross Dollar Value terms increased at a CAGR of 17.1% during 2011-2015. Over the forecast period of 2016 to 2020, the category is expected to record a CAGR of 13.3%, increasing from USD 536.5 billion in 2016 to reach USD 885 billion by 2020.

The industry experts stated that implementing regulation based on information requirement on transaction through these cards would reduce its usage among vulnerable consumers who are not otherwise connected to the financial system by any means. This might bring down the popularity of prepaid cards in comparison to banking services. They said that open loop cards cannot be used for illegal transactions as it requires user identification to the vendors. Other difficulties have also been stated regarding the proposal. In order to check balances, border agents would need card scanners that are costly and invade consumer privacy. Also, the entire tracking was regarded unnecessary as service providers already have their own security measures to control illegal transactions.

Amidst this situation the risk of money laundering is still looming across the US. European countries have also expressed their concerns regarding the same. It can be anticipated that reformed proposal regarding prepaid card usage will be presented in coming years in order to control illegal transactions. It is likely to impact the prepaid card industry in a significant manner.

To know more and gain deeper understanding of prepaid card industry in the United States, click here