Is Prepaid Growing?

Prepaid card payments have been the fastest growing noncash payment method in the U.S. over the last several years, according to recent Federal Reserve data. In 2012, the total number of prepaid card transactions reached 3.1 billion, up 1.8 billion from 2009. In a recent interview with PYMNTS, Ron Hynes, Global Head of Prepaid Solutions for MasterCard, tells us why the use of prepaid products is on the rise. Find out why Hynes believes prepaid products are taking off now more than ever and the role that MasterCard is playing to help its issuers drive even more volume on those products.

What are some of the most significant trends you have observed in the prepaid industry globally, and how does these play out in the US market?

RH: I think there’s a common benefit for prepaid accounts, and that is the ability to bring folks that live outside of the financial mainstream into the mainstream. When we think about prepaid, people often think about prepaid cards. We aren’t really talking about cards, but rather access to one’s money through a prepaid account, which has all the protections of most other bank accounts.

Prepaid enables this to happen through a number of distribution channels. These channels vary somewhat – here in the U.S., a consumer may be familiar with things like the Wal-Mart money card and get a bank account in the form of a prepaid account at the store. There is also the distribution channel through employers, where many have moved from paper checks to direct deposit. When there are employees that don’t have bank accounts, there’s really no way to provide them with convenience and cost savings benefits of direct deposit. Prepaid accounts, which came into existence 20 years ago, have enabled more people to have access to direct deposit and mainstream financial services. This happens both inside and outside of the U.S.

Then, a third distribution channel, and possibly the largest globally, are governments. The U.S. Treasury, for example, uses prepaid accounts to disperse social security benefits to people that don’t have bank accounts, providing them instantaneous access to their funds.

When you get outside of the U.S., it’s even more profound. One of the greatest benefits is that many of the disbursements of government subsidies, a main source of income for a lot of people, were previously in the form of cash. Recipients would spend hours or even a day waiting in line for the stipend, and the person distributing the cash may give them less than what they were owed. Electronic disbursements eliminate the ability for that to happen – 100% of the pay is delivered into the account when it’s supposed to, channeled appropriately, creating more wealth to the people that really need it.

What do you see as the most unrealized prepaid opportunity in the US and how is MasterCard prepared to address it?

RH: There’s still a consumer education and adoption piece, as prepaid cards have been mainstream for about 5 or 6 years, and there are still 20-30 million people in the U.S. that we consider unbanked. There are still too many people that have not taken advantage of prepaid accounts – they’re truly an onramp to financial services. MasterCard is looking at things like credit scoring capabilities so that people with no file or thin file credit histories can leverage their prepaid activity to build a credit score, and get access to affordable credit.

But the biggest unrealized opportunity is really just finding a way to help consumers understand the benefit of being banked. There are financial, security, and convenience benefits to having a prepaid account – and one of the biggest benefits is the self esteem that it builds for an individual to feel like they are like everyone else, and can pay like everyone else.

According to the Federal Reserve Bank, prepaid cards have been the fastest growing non-cash payment method in the US. In your opinion, what is driving prepaid adoption and what industries can benefit the most from it?

RH: So while I mentioned there are still many people without bank accounts, the good news is that there are 10-15 million with bank accounts that didn’t have them before. And consumers are finding many other uses for prepaid, especially when it comes to financial responsibility. We’re seeing a lot with millennials – not so much an interest in using prepaid in lieu of a bank account, but in addition to one. One of their uses for prepaid is budgeting, and the other is the much more feature-rich capabilities today of some of the prepaid accounts on smartphones, as compared to a more traditional bank or checking account. The segregation of funds is a big one that’s driving growth, but more importantly, the growing understanding and acknowledgement that there are alternatives to be under-banked and unbanked. These alternatives are safer, more convenient, more cost effective, and help people feel like they’re more normal.

Let’s talk a bit about security. What are the benefits of prepaid versus cash?

RH: Like with any MasterCard product, there is a zero liability benefit. If a consumer loses his or her card, or it is lost or stolen, he or she has no liability. This is different for cash – one may lose $300 cash from a wallet, and there’s no getting it back. That is probably the most profound example of security.

Elsewhere, in the Middle East, we have a number of programs that helped the government of the UAE move from what was a 100 percent cash salary ecosystem to 100 percent electronic.

We were shared a compelling story about this gentleman in Dubai who would wait in line to get paid for hours, and when he finally got to the front of the line, he would often get paid less than what he was owed. He would then, after work, walk outside the city and go to a specific tree, keep the cash he needed and put the rest of the money in a burlap sack in the tree. So he created his own bank account, in essence. He was sending money home to India to support his family, and when they called one day asking for money right away, he went back to his tree only to find that it and 100 percent of his net worth were gone due to construction.

After getting a prepaid account, this man told his story about security, saying that thanks to MasterCard, he now carries his tree with him everywhere he goes. That’s pretty powerful and exciting.

Finally, how do you expect the prepaid market to evolve in the over time and what role will MasterCard play?

RH: I think it will continue to become more of a mainstream financial service both here in the U.S. and around the world. There are 3 billion people in the world that don’t have access to mainstream financial services, and MasterCard is committed to leading the way in changing that. The primary way that we will do that is with prepaid cards and accounts, and governments will be a key critical component to helping with this as well. We will also continue to work to bring more features and functionalities to a prepaid account – things like rewards, discounts, bill pay, and hopefully credit building capabilities down the road that will make prepaid much more similar to traditional bank accounts.

Ron Hynes
Global Head of Prepaid Solutions, MasterCard

Ron Hynes is group executive, Global Prepaid Solutions at MasterCard Worldwide. In this role, he is responsible for leading the development of prepaid programs around the globe that create a competitive advantage for MasterCard and its customers.

Prior to his current role, Hynes was group head, senior vice president of Global Prepaid Solutions, where he led the development of the MasterCard global prepaid product strategies, as well as overseeing the group’s product development initiatives. In addition, he interacted regularly with the company’s prepaid customers helping them to build and implement their business and product strategies to capitalize on both short and long term opportunity, and to ensure customer objectives are incorporated into the planning at MasterCard. Hynes also served as the head of Prepaid Product Development for the Americas Region for MasterCard. In this role he worked with the US and LAC regions to develop long term strategic product plans to address the needs of the company and our customers.

Mr. Hynes received his MBA from Northeastern University in Boston, Massachusetts and a B.A. in Business Administration from the University of Southern Maine.