For the longest time, saying the word “prepaid” to a financial institution or issuer might have been met with a yawn. Yes, the stepbrother of debit was a legitimate form of payment with plenty of clever applications, but why bother when there were so many other more lucrative lines of business.
Well, as it turns out, prepaid has found a new momentum. I’ve found, based on my company’s experience creating prepaid offerings, that this is in large part due to some inherent properties that make prepaid a good option for many of today’s most pressing use cases, such as on-demand delivery, gig work, digital subscriptions and other forms of mobile and digital commerce.
A Gateway Account For Digital Inclusion
Any meaningful digital inclusion today has to have some form of financial inclusion — a means with which to pay for goods and services or to receive funds digitally in real-time, whether for groceries, work performed, a remittance or person to person. One method for addressing these new market segments is the instant issuance of a virtual card within an app or wallet and as part of enrollment for receiving or providing one of said services.
Instant issuance of a virtual prepaid account can be a fast, economical and low-risk way to establish an entry-level account or a card on file with a new customer. This is because prepaid is more cost-effective to issue and maintain than debit in large part because it has an almost universally lower regulatory burden for issuers and program managers alike. That’s a big deal here in the United States and particularly in regions like Southeast Asia and Latin America where addressing new demand and demographics for e-commerce and mobile retail and subscription-based services is hot and getting hotter.
If the race was already on for these markets and use cases before Covid-19, the pandemic has seemingly crystallized the business opportunity as online transactions spike and countless, ever-cautious consumers seek to use urban delivery and other contactless forms of purchasing and payment for the first time.
Here, too, prepaid is finding issuers and fintechs seeking speed to digital models and economy:
• Gig economy players needing to equip and pay out a growing number of contingent workers with disbursement accounts.
• Organizations seeking affordable one-time payouts for things like insurance claims.
• Remittance players looking to reduce foot traffic.
• Local and federal governments seeking to limit gatherings of citizens standing in line to receive financial aid.
Prepaid As A Path To Debit
Prepaid in its new virtual and mobile-friendly embodiment also provides a catalyst for deposit capture. A prepaid account issued to a one-time mobile user, for example, can be converted in-app to a more permanent deposit account with just a few lines of code. Specifically, by asking the holder to provide the remaining information required for identity validation (know your customer) and legal compliance (user agreement).
Your prepaid stepbrother just brought you a new deposit relationship. It’s no doubt an interesting proposal for the many on-demand companies seeking their own foothold in financial services.
Alternatively, a virtual prepaid card in a mobile wallet can also be linked to a debit account for funding purposes, providing both new entrants and established customers an added sense of security by placing a surrogate account one step removed from their primary checking account.
Determining Whether Prepaid Is A Good Fit
Of course, prepaid should not be seen as a cure-all. For example, it might not be an ideal choice for demographic segments that already have a long history and high rate of using debit, like the affluent. Nor is it likely appropriate for commercial purposes, such as programs for merchants where it cannot really replace a deposit account.
To determine whether prepaid is a good fit or not, issuers should also consider factors like the desired end-user experience and feature functionalities.
It’s time to re-evaluate and reconsider prepaid’s relevance and utility through new lenses, taking into account the latest mobile-enabled issuing models, use cases and players. Besides, everyone loves a comeback story.
Original Source: Forbes