The broadening appeal of prepaid
The broadening appeal of prepaid PREPAID CARDS PURCHASED IN THE PAST 12 MONTHS, AND INTENT TO PURCHASE IN THE NEXT 12 MONTHS
Research shows that prepaid payment methods are poised for more growth, as consumers embrace them for a growing range of reasons.
Purchased in the past 12 months
Prepaid cards have come a long way from the days when they were considered a tool for the unbanked. Indeed, 6 out of 10 consumers say they have recently purchased these cards. And while overall growth has been relatively flat, it’s clear that there has been significant increase in use among key segments.
60% 19% 25% 50% Intend to purchase in the next 12 months 49% 58% 19% 27% 50%
0%
20%
40%
60%
■ Any prepaid card ■ General purpose, reloadable ■ General purpose, non-reloadable ■ Retailer-specific prepaid cards
That is one of the key findings from this year’s Vantiv Insights Research, which looks at consumer attitudes and behaviors related to various payment methods. At first glance, these findings would suggest that prepaid growth is leveling off. But a deeper look indicates that the use of prepaid cards is going to increase—essentially, because consumers like and trust them and are finding a growing range of uses for them. For banks and merchants, that reality spells opportunity. “Consumers see prepaid cards as being a good fit with their lives,” says Royal Cole, president of Financial Institution Services, Vantiv. “Banks and merchants that think strategically about how to help customers take fuller advantage of prepaid cards will be in a position to reach more consumers, drive revenue, and develop closer relationships with customers.”
An Increasingly Varied Consumer Base In this year’s study, 60% of consumers said they had purchased some type of prepaid cards in the past 12 months— not much different than last year’s 63%. However, when looking specifically at general-purpose prepaid cards, the research saw usage increase 4 percentage points year over year. And among those who bought prepaid cards, 43% said that they expect to buy even more than they did in the past. At the same time, prepaid cards are appealing to an increasingly broad range of consumers. Prepaid cards have traditionally been embraced by underbanked and lower-earning consumers who may find it difficult to open checking and credit accounts at banks. That is no longer the case. Today, the research found, the likelihood of purchasing a general-purpose reloadable card is essentially the same across income levels, with one notable exception: Consumers earning less than $50,000 a year are actually less likely than higher-income consumers to have bought one. “We’re seeing people planning to increase their prepaid card purchases, and we’re see-
Source: Vantiv Insights 2013 Research
Purchasing Prepaid A majority of consumers bought at least one prepaid card last year, with retailerspecific cards being the most popular. About the same number expect to buy cards in the coming year.
Note: This paper is an addendum to the Vantiv Insights 2012 white paper, “The Case for Prepaid,” and incorporates data from the 2013 Vantiv Insights Research. Visit vantiv.com/research for more information.
3
ing prepaid being leveraged by a wider range of consumers,” says Stephanie Ferris, SVP, Financial Institution Services, Vantiv. “These are strong indications of future growth.” Perhaps most important, prepaid cards have gained a great deal of traction among younger consumers. People age 18 to 35 are more likely than older adults to have purchased any type of prepaid card. They are especially interested in general-purpose reloadable cards, with 29% of young adults buying them, compared to 19% of 35- to 64-year-olds and just 3% of senior consumers. Young adults are also more likely to say that they intend to buy more general-purpose reloadable cards in the next year (34% vs. 26% average), while 47% plan to increase their purchases of retailer-specific cards. Some of this may be due to the fact that the youngest of these consumers are underbanked, given their generally lower income levels. But their interest in prepaid runs deeper than that. For example, they are more likely than older consumers to feel that prepaid cards are safer than cash, useful for online purchases, and useful for budgeting. And they are more likely to say that they trust prepaid cards. “Younger consumers have seen prepaid cards used in a variety of ways, from e-commerce purchases to buying bus fare or lunch in the college cafeteria,” says Ferris. “We expect that they will carry these attitudes and usage levels forward as they make up more and more of the consumer mainstream.”
Meeting Consumers’ Needs There are several reasons for the wide-ranging appeal of prepaid cards. Certainly, the underbanked are still an important segment. According to the Federal Deposit Insurance Corp., one in five U.S. households fall into that category. And a Vantiv/GfK survey of shoppers last holiday season indicates that a growing number may be having difficulty establishing full banking relationships, with 37% of respondents saying they didn’t have access to debit cards, up from 28% the previous year, and 34% having no access to bank credit cards, up from 22%. However, consumers in all segments are looking for ways to avoid rising checkingaccount fees, and prepaid cards offer an alternative with the bonus of added spending controls. Overall, more consumers are using prepaid cards as a substitute for checking accounts this year (23%) than last year (16%). Nearly one-fourth said they plan to do so in the near future, with 32% of young adults saying they expect to make that change. The research also found that consumers are interested in prepaid because of: Convenience. Consumers said convenience was a top reason they choose a payment method, and prepaid cards are familiar and simple to use. In the Vantiv/ GfK study, 29% said prepaid cards were an easy payment method, up from 17%. Budgeting tools. Consumers are looking for help in managing their spending,
EXPECT TO USE PREPAID CARDS AS A SUBSTITUTE FOR CHECKING ACCOUNTS THIS YEAR 2012 All
16%
2012 18-34
23%
2013 All
21%
2013 18-34
32%
0%
5%
15%
25%
35%
Source: Vantiv Insights 2013 Research
Looking for More Among consumers who bought cards last year, many expect to increase the number of cards they purchase in the coming year.
4
and they like the inherent discipline of having a limited amount of funds available on the card. In addition, they can dedicate specific cards to certain purchases—groceries, entertainment, etc.—and thus easily allocate set amounts to those categories. About one-third said they consider prepaid cards useful for budgeting; among young adults, that rose to 43%. And, as more cards allow consumers to track spending online, prepaid cards will be even more effective budgeting tools. Security. This is a key issue, and consumers are especially worried about the security of new forms, such as mobile payments. They see prepaid cards as offering higher levels of security and providing limited risk. Indeed, prepaid cards were cited by 67% of consumers as a secure type of in-store payment—the highest percentage of any payment, including credit cards. By comparison, just 19% believe mobile technology is secure for payments.
The Mobile Connection Today, mobile technology is bringing new customer payment and interaction channels into a growing multichannel mix, and prepaid methods can play an important role. While the Vantiv research found that many consumers expect to be using mobile payments within five years, they expressed reser-
vations because of perceived security issues, and because they are looking for more than just mobile payments—they want a platform that helps them manage their finances. By incorporating prepaid accounts into mobile wallets, the industry can help address those concerns. As the research shows, consumers see prepaid accounts as secure and useful for budgeting. Prepaid can bring those qualities to the mobile platform, giving consumers more compelling reasons to switch. This approach can also make prepaid accounts more attractive, because it gives consumers a new avenue for accessing prepaid funds—not only in-store or online, but virtually anywhere they take their phones. Prepaid offerings will continue to evolve in step with changing customer expectations. “This is an area where we’ll see continuing innovation,” says Cole. “For example, prepaid can be bundled with other offerings such as tabletbased small business solutions or used by banks as a tool to bring in younger customers and grow those relationships over time.” For banks and merchants, the opportunity lies in understanding new consumer perspectives, and then developing innovative approaches to giving consumers what they want.
AGREEMENT WITH STATEMENTS ABOUT PREPAID CARDS (Base-All, Top 2 box) I can trust general-purpose prepaid cards
62% 62%
I can trust retailer prepaid cards*
61% 57% 55%
Useful for online purchases*
49% 44%
Safer than cash*
38%
Useful for household budgeting Will use as a substitute for checking account* 0%
36%
23% 16% 20%
40%
■ 2013 ■ 2012
60%
80%
* Statistically significant difference 2012-2013 at the 95% level Source: Vantiv Insights 2013 Research
The Appeal of Prepaid Consumers trust prepaid cards and think they are secure—and they see a variety of uses for them.
About Vantiv Vantiv LLC is one of the leading integrated payment processors in the United States. Known as Fifth Third Processing Solutions since 1971, the company, headquartered in Cincinnati, Ohio, changed its name to Vantiv in 2011, and became a public company in 2012. Vantiv’s credit, debit, prepaid, and mobile solutions help businesses and financial institutions of all sizes get the most out of payment activities.
Vantiv Corporate Headquarters 8500 Governors Hill Drive, Cincinnati, OH 45249 866-622-2880 | www.vantiv.com TL0002 9/13