Long considered a mainstay for unbanked consumers rather than an attractive offering for those with an existing banking relationship, prepaid cards are often overlooked by financial institutions. But prepaid cards play an important role in the finances of banked and unbanked consumers and businesses alike.
Prepaid card use is on the rise and expected to reach . The cards’ use is prevalent among unbanked households, at , and of households that use prepaid cards are unbanked or underbanked. But fully banked households are also using them. In fact, of fully banked households report using prepaid cards within the past 12 months.
Prepaid credit and debit cards can be an effective tool for enhancing current banking relationships, driving new account openings, and even attracting former customers. A 2017 FDIC survey revealed that of unbanked households that used prepaid cards in 2017 previously had a bank account. Additionally, businesses that have banking relationships are using prepaid cards in increasingly creative ways to streamline operations, cut costs, and support promotional efforts.
A prepaid card looks and acts like a debit or credit card, but offers many attractive benefits their traditional counterparts do not. Institutions that leverage the most appealing features of prepaid cards can attract new cardholders and further strengthen current relationships. Let’s take a closer look.
One of the benefits of prepaid cards is that they are more secure than cash. And unlike debit and credit cards, prepaid cards don’t link to personal data that could be accessed by thieves. This is especially appealing to consumers in scenarios where they may feel more vulnerable to theft, such as when traveling or making purchases online. Additionally, prepaid cards are subject to new protections intended to increase security.
Businesses looking for a more secure alternative to petty cash funds and corporate credit cards are finding success with prepaid cards. Companies can use the cards to manage and track employee expense accounts, petty cash, and even employee incentive programs. Prepaid card programs like offer many features that help streamline these tasks and more.
When prepaid cards first came on the scene, consumers were drawn to them as an alternative to traditional banking. But since the cards lacked the consumer protections that traditional credit and debit cards offered, some users ended up paying fees for everything from card activation to withdrawals, reloads, and even customer service calls.
This has changed with new prepaid card regulations from the that took effect on April 1, 2019. The regulations make the cards more consumer friendly by including requirements for disclosing fees and protections in case of card errors, loss, or theft.
Even before the CFPB regulations, prepaid cards were a more cost-effective solution for many consumer and business situations. Take the example of , a leader in advanced lubrication and energy solutions. The company was struggling with the inability to track and report sales incentives, and paying for it in stop payments on uncashed checks and other related expenses.
After consulting with Worldpay, Lube-Tech replaced the checks with prepaid, company-branded, reloadable cards. The cards are flexible enough to be used in a wide range of Lube-Tech’s incentive programs. And by replacing checks with prepaid cards, the company has cut their costs in half.*
Since funds are limited, prepaid cards have become a popular way for both consumers and businesses to track expenses. Funds cannot be overdrawn on prepaid cards, which help consumers stick to a budget. And businesses can use prepaid cards to track miscellaneous expenditures and manage employees’ per diem expenses.
One unique use case for using prepaid cards to budget expenses comes from the , a nonprofit organization that assists individuals and families in distress. The organization enlisted Worldpay to help them design a prepaid card program that would allow them to issue one-time use cards and reloadable cards with daily spending limits.
With Worldpay’s prepaid program, Sephardic Food Fun can limit card usage to specific merchant categories, ensuring ensure clients are using the cards in the way the organization intended. The program also allows the organization to monitor card spending and easily reload cards, which reduces administrative time and costs and increases efficiencies.
Easier rewards and incentives
Because they are easier to distribute than cash and more versatile than merchandise, prepaid cards are a natural fit for many types of customer and employee incentive and reward programs. Recipients like the cards because they have complete control over their purchasing decision without the restrictions of an affiliated gift card. Businesses like the cards because they can be personalized to the occasion for the reward and customized to promote brand awareness.
Prepaid card incentives are effective in both business to consumer and business to business settings. One example is , a manufacturer of innovative automotive tools that serves both the automotive aftermarkets and the industrial and commercial sectors. Sunex Tools originally sold through wholesalers and resellers. The company wanted to build brand engagement directly with their end users, but needed to figure out who they were first.
After consulting with Worldpay, Sunex Tools implemented a mail-in rebate program offering end users a prepaid card in exchange for remitting their contact information. The strategy was effective– the company was able to triple the amount of end users in their rebate program, giving them a robust list of contacts for direct marketing efforts.* The promotion also paid off to their bottom line; Sunex Tools reported 50 percent higher unit sales and approximately $334,000 sales growth following the rebate program.*
Prepaid cards present a unique opportunity for financial institutions to increase cardholder loyalty among current consumers and businesses, and reach out to an otherwise untapped pool of users. Whether you’re appealing to new cardholders or small businesses, be sure to keep prepaid card solutions top of mind.
*Results may vary
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