Prepaid success: it's in the cards: with the new consumer trend of debt moderation, prepaid cards promise to be the next big growth market. Here are some tips about making effective offers that help you gain market share.

• Author: Vidal, David
• Position: Product Trends

Many times you have heard the cashier ask, "Cash or Credit?" in the store checkout line. In the near future, you may hear a new answer to that question: "Prepaid!"

The days of credit/debit being the next-best payment method to cash may be quickly waning. With about 30 percent of the U.S. population being nonbank account holders and the repercussions of the financial crisis, prepaid payment options are experiencing a significant increase in demand. An international benchmarking study on the prepaid card market shows that U.S. providers are still underperforming--despite the fact that the market has been growing significantly.

Now seems to be the time for banks and financial services providers to act if they don't want to miss out on this opportunity.

Why are prepaid cards so successful?

A prepaid card is a payment card that customers can preload and use like a credit/debit card. It is a relatively simple model also used in the mobile phone industry. Studies show that by 2010 the volume of this market will reach $178 billion, which is an estimated 58 percent growth from the $113 billion it represented in 2007 (data from Aite Group, LLC).

Due to the recession in particular, banks and retailers value this product because they can lock in customers without taking on a credit risk. Many governments and employers use the cards for benefits or payroll, as it helps to streamline processes and reduce administrative expenses. Customers like it as well because these cards offer multiple advantages: no need to get credit approval; more control over spending (only transactions up to the balance loaded onto the card will be authorized); and no interest payment or late payment of fees and so forth. In addition, prepaid cards are widely accepted; you can shop online, at your favorite merchant or while traveling abroad.

As a result, a broad variety of specific prepaid cards are available--like travel cards, gift cards, telephone cards, expense cards or insurance cards. Several U.S. banks are already on the prepaid card bandwagon, including PNC Bank, Pittsburgh, (which recently took over National City Bank, Cleveland); Bank of America, Charlotte, N.C.; and US Bank, Minneapolis; and among the most popular non-banks involved in the prepaid industry are Wal-Mart, Netspend and Account Now. These have developed as interesting alternatives to banks as they can better position themselves towards the underserved unbanked population.

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