Prepaid solutions have been available in the marketplace for a decade — but consumer adoption still doesn’t seem to have sparked. MPD’s Karen Webster asks Ron Hynes, Executive Vice President of Global Prepaid Solutions at MasterCard, to explain why that might be.
WEBSTER: Billions of people continue not to have access to prepaid products. Why, after so long, is prepaid still such a nascent industry in the U.S., as well as in developing economies around the world?
HYNES: Some of it has to do with infrastructure, particularly when you go outside the U.S. Within the U.S., there’s access to services like direct deposit, in a much more formal employment economy than in many other parts of the world where employment is much more informal. Frankly, so many people are paid in cash. And if you’re paid in cash, and you don’t have any way to convert that cash or make a deposit with that cash, you’re left high and dry. I think that’s one of the developments that you’ll see happening around the world.
WEBSTER: Is there also a consumer education aspect?
HYNES: There’s a financial literacy need in general for the underserved. In a place like the U.S., where 60 million consumers use alternative financial services like check cashing operations, there’s a clear need for knowledge sharing. Specifically, there’s a need for consumers to understand the value of things like direct deposit. There’s a certain amount of inertia that’s hard to overcome.
WEBSTER: Why do you think banks haven’t made more of an effort to develop alternative prepaid products to serve the underserved?
HYNES: Actually, many banks have started to make a real effort in offering prepaid products to serve customers. In many cases, the banks may not be the only channel to serve these underserved customers. It’s a question of, “Is that where the underserved customer is looking to find these particular financial services?” And I think the answer in a lot of cases is, “Not necessarily,” and that’s why companies like NetSpend, Green Dot, and others have filled that need in the marketplace for that underserved customer.
WEBSTER: Many people might be surprised to learn that so many prepaid card customers actually have bank accounts, but use prepaid products for a variety of reasons including the perception that it’s a more cost effective and efficient money-management product. Is that a new phenomenon, or has that always been the way people have used prepaid products?
HYNES: It’s an emerging phenomenon. I don’t think consumer behavior has changed, necessarily. Consumers have always been interested in control, budgeting, segmented spending, etc. In fact, I can go back forty years and remember my mother with her Christmas Club account. That was a very segmented system, and she was systematic in how she put money away so that when the holidays came she had money to go out and spend. So I don’t think the consumer dynamic has changed. What consumers are beginning to understand is the ease with which they can accomplish some of that planned spending through prepaid products and offerings. We certainly see this in mature and even some emerging markets where consumers that are increasing travel, for example, and are using prepaid travel cards to segment their spending. Travelers in particular find value here because before they depart, they can gauge how much money they have to spend and what that translates to in local market currency.
WEBSTER: A lot of times it’s also, for those that don’t have credit products available to them, or debit products, it’s a convenient way to shop online.
HYNES: Absolutely, that’s a significant part of our customer base. Some of the most substantial programs we have outside the U.S. speak to that population. Prepaid isn’t always for the unbanked population exclusively, it’s also for consumers that have access to banking products, but feel more secure not exposing their entire bank account or their entire credit line online and opt for a prepaid solution.
WEBSTER: I know one of the areas that you think has such great potential in prepaid is government benefits. Yet it seems, at least in the U.S., very few government programs pay out on a prepaid product. Why isn’t prepaid more embraced by our government?
HYNES: Actually, almost every one of the 50 states disburses some type of benefits on prepaid cards. But it is focused on more of the open-loop-type opportunity, which would include child support, unemployment insurance and social security. The government estimates prepaid products will save tax payers more than a billion dollars over the next 10 years. And we’ve continued to see those programs grow and flourish.
WEBSTER: For example, some government benefit cards can’t be topped up, is that correct?
HYNES: More broadly, I think governments around the world initially looked at prepaid as a very useful tool for efficiency. And what has evolved over the last few years is the thinking, by governments, that prepaid is more than just a mere disbursement tool. It’s actually the key lever to emerging financial empowerment agendas around the world. The capabilities of a prepaid account for an individual consumer that receives benefits from a government will continue to expand; so in addition to having my benefits deposited into a prepaid account, that prepaid account will also provide the ability for me to have direct deposit of my pay, or my spouse’s pay, or my spouse’s benefits. So again, we continue to work with governments to develop additional solutions.
WEBSTER: How is mobile changing the definition of prepaid in developing economies, as well as in the U.S.?
HYNES: Prepaid has a critical role in mobile, both from a mobile wallet perspective — Google Wallet-type programs, for example — and also in mobile money programs around the world. If you look at many of the mobile money programs today, they are largely electronic disbursement programs. And the real opportunity is to create much richer capabilities for consumers to use those mobile money accounts, not only to top up and get cash, but to add MasterCard payment functionality to them.
WEBSTER: Finally — it seems that everyone thinks mPesa is the poster child for mobile money success. But it seems like it’s been relatively hard to replicate. Any thoughts on why that is? What are some things, specifically that MasterCard may be doing to help stimulate more “mPesas” around the world?
HYNES: A lot of the mobile money focus early on was around electronic disbursement. So now that the asset has been built, and 50 million or so people around the world have mobile money wallets and mobile money accounts, the opportunity is in how we expand that functionality to create more utility for the end consumer. And as you do that, I think it opens up a whole new world of geographic expansion capability for other telcos. But, of course, it takes time.
Group Executive, Global Prepaid Solutions
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.