The question of whether prepaid is approaching irrelevancy in the wake of so many electronic payment innovations has been hotly debated of late. And just to complicate things, our answer to that question is “yes” and “no.”
Let’s look at the affirmative answer first. Many who say prepaid—not closed-loop gift prepaid, but rather, open-loop, general purpose prepaid—is indeed becoming less relevant than it once was because it solved short-term payment problems that have since been eliminated as new payment technologies have been introduced into the marketplace. Undeniably, that is so.
Additionally, some consumers may be moving away from prepaid because the economy is on the upswing. With an improved economy come more jobs. With more jobs, come an increased number of consumers who, by virtue of their employment, can qualify for and use bank accounts and credit cards instead of relying on prepaid options, as may once have been the case for them.
Further, when payday loans and cash ruled, prepaid was, for some consumers, a “stopgap” payment method. However, payday loans are fading into the sunset, and cash no longer is king—no stopgap required.
Pushing the “prepaid irrelevancy” envelope as well, providers have, over the past few years, moved beyond prepaid and into debit (Green Dot is a good example here) and secure credit card products. Consequently, prepaid may not be needed as much as in the past, when these products were not available. One added benefit of secure credit—its potential to help consumers build credit—also make it more attractive than prepaid and hence, more relevant.
But wait. Despite the validity of these arguments, there are just as many to support the contention that prepaid will certainly retain some of its relevancy. Here’s one: Admittedly, general purpose prepaid, which came to fruition in the 1990s, is not old when compared to credit cards, which made their debut in the 1950s. But it’s been around 20 years. It’s hardly new.
Just as significantly, the average person might think that members of Generation Y, who are moving into the working world and using their mobile phones to run their lives inside and outside of the workplace, would walk away from the prepaid category. However, that isn’t necessarily so. The prepaid category as a whole is very mobile. Prepaid “cards” were the very first “cards” to become available in app form on mobile phones. The prepaid feature is now a staple mobile banking feature—as much of a staple, say, as paperless statements and text alerts.
What’s more, there is the undeniable fact that prepaid helps consumers with budgeting—and for the most part, Americans desperately need such assistance. It is easier for consumers to stick to a budget if they are paying for purchases with a prepaid card, rather than with a credit card.
As if that weren’t enough, there will always be a cadre of consumers who cannot easily obtain credit—for example, new arrivals to the U.S., as well as the unemployed and underemployed. They’re going to embrace the option of prepaid, because, as noted in a previous blog, prepaid cards are an excellent “bridge” to credit cards—and consumers should be able to use them to build credit.
In short, yes, prepaid may be losing some of its relevance. Nonetheless, proclaiming that it has lost all of its relevancy is pure hyperbole.