US prepaid market: Big banks give way to smaller companies

Print

Email

In the U.S., prepaid card is used in large volumes for distribution of benefits by government and corporates. In addition, retail segment is being driven by millennials and Gen X segments, who are particularly adopting prepaid cards to avoid overdraft fees and debt. PayNXT360’s forecast suggests that prepaid card transaction value will reach US$770 billion by 2020, recording a CAGR of 13% during 2016-2020.

In spite of high growth and synergy with strategic line of business, bigger US banks are divesting their prepaid card services. Recently, Citigroup divested its prepaid card services division to Wirecard AG, an European payments processor. The deal will help Wirecard to expand into burgeoning US market with Citigroup's institutional prepaid cards division that has launched incentive and compensation cards for more than 2,500 clients in the past. Earlier in 2014, JPMorgan Chase, the biggest bank in the United States by assets, also exited the prepaid business in the US. The prepaid card business not only offered these financial institutions volumes and profit, but also strengthened their treasury- client relationships and increased banks consumer touch points.

PayNXT360 views that smaller and agile companies with innovative and flexible prepaid card programs are better suited to face the challenges in the low margin, high volume dynamic prepaid card payment industry. Also, companies dedicated to the prepaid industry are better equipped to address consistent innovation in this flexible tool that has manifested in many ways as compared to small departments of large banks.

With multiple business units, stakeholders (viz regulators, clients and consumers) and varied processes (viz. onboarding, setup, distribution and support); prepaid card business render little value proposition for large financial institutions. 

Also, different prepaid cards such as gift cards, e-gift cards, general spending cards, payroll deposit cards, employee incentives and government benefits delivery cater to different commercial units and consumers. Addressing to the needs of these varied segments can make a huge difference to the profit earned by big banks and subsequently jeopardize overall consumer experience.

Furthermore, regulations, security issues and confusion over prepaid card usage and fees added to the complexities faced by the big banks.

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