Innovations in prepaid cards and mobile phones are beginning to erode the traditional monopoly of banks as the home of ‘first accounts'.
According to new research by Prepaid International Forum (PIF), the next generation of financial services customers is more likely to use a prepaid card or mobile device, instead of a bank account, when they first become active consumers.
A survey of 1,000 parents with children under the age of 16* has revealed that 26% of children use financial products to make purchases. While of these 40% use debit cards linked to a bank account, 58% use a prepaid card or accounts linked to mobile phones as their payment account of choice.
While prepaid cards account for 35% of first time account openings in the under 16 market, amongst younger children, those 12 and under, prepaid is 5 times more common than debit cards and 2.5 times more common than mobile payment accounts.
The main motivations of parents to open such accounts for their children are to give them a greater sense of financial responsibility and to manage a budget (60%) as well as a greater sense of independence (17%).
Innovations by non-bank service providers for first accounts also appeal to parents. Parents surveyed highlighted balance and transfer notifications (43%), mobile money transfers (28%) and the ability for children to use financial products for online transactions (23%) as being crucial to decisions about where to open first accounts.
Ray Brash, MD and Chairman at PrePay Solutions, which has handled over €5bn of transactions worldwide in 2014, explained why prepaid has an increasingly positive reputation:
“Prepaid owes its success to the flexibility of the product. These days it can offer anything from multi-wallet loyalty cards, to multi-currency travel cards and even basic bank accounts.
To a card-holder, prepaid is a flexible companion that can offer additional benefits a traditional bank account might not, such as real-time transaction information, detailed spending analysis to help you budget, or better rates when travelling abroad. It is an ideal product to help teach young people how to handle their money in an increasingly digital age. And as a result we see more and more of our clients implement so called ‘banking lite’ solutions.
For the issuer or retailer, the implementation benefits of a prepaid programme in any shape are endless. It’s flexible, gives a platform to innovate, it’s scalable, and offers measurable results, whether you are an association of local retailers wanting to issue loyalty cards, or a large corporate wanting to offer employee benefits.
Watch this space. Prepaid will be going places over the next few years. ”
Alastair Graham, spokesperson for the Prepaid International Forum (PIF), which represents the prepaid sector said:
“Alternative banking solutions are a major challenge to the banks. As well as flexibility and innovative services, they open the door for brands to offer such services for the first time to customers. To a fashion conscious teen who has grown up in a post-credit crunch world, where the reputation of banks is diminished, it’s possible to understand why a ‘Nike’ account (for example) may have significant appeal.”
Mike Smith, a Director with London-based Raphaels Bank, the UK’s largest issuer of Visa and MasterCard prepaid cards with over 180 European prepaid card programmes and 5m cards settling around £5bn this year under their management, commented that they are seeing more implementations of prepaid programmes to service mainstream markets such as government payments, payroll payments and as an entry into everyday banking by organisations such as post offices.
Recently, in association with Payment Card Technologies (PCT), Raphaels has brought the Change Account to the market which is pushing the boundaries of the traditional approach to banking with multiple budgeting purse features, mobile based account management, online faster payments and direct debit/credit capability. Smith said of the account:
“The Change Account is positioned as a ‘banking lite’ offering although in many ways it actually provides more functionality than a normal current account .”
Underpinning this innovation in prepaid financial services research from PSE Consulting forecasts that spend on prepaid cards is estimated to reach £112 billion in Europe, Russia and Turkey by 2020**. The growth will be driven by serving the underbanked population as well as servicing the need for secure online payments. The UK and Italian markets are forecast to be the biggest adopters of prepaid as a mainstream banking alternative.
With this level of growth it is expected that Europe will follow the USA where both established non- financial brands such as Walmart and established financial services players such as American Express have become major accelerators of growth in the prepaid account market