Aug 01, 2013 Dave King
The financial crisis led to a variety of economic shifts in a relatively short period of time, including the rise of alternative financial services and the mass exodus away from traditional accounts. As a result, businesses and financial institutions have had to adopt more progressive strategies to reach more unpredictable consumers and businesses.
Prepaid cards are the latest product to become popular among consumers who do not prefer traditional credit and debit accounts, and have been adopted in high numbers by the unbanked and underbanked populations. Recent data indicates that tens of millions of American households are now considered either unbanked or underbanked, and a growing majority of this demographic is using prepaid cards.
Gaining an unbanked following
Bank Systems and Technology recently listed some of the most effective methods businesses and financial services providers can leverage to reach unbanked and underbanked households. According to the news provider, 68 million individuals, or 20 percent of the U.S. population, is currently unbanked or underbanked, which represents a massive portion of the overall economy.
Failing to reach these consumers could lead to substantial issues, both for the demographic and the corporate market. For example, experts believe that the unbanked and underbanked will eventually run into serious roadblocks when trying to get health care, take out mortgages and more. On the other side of the equation is enterprise, which will not be able to enjoy the most optimal revenues without unbanked and underbanked households.
The source explained that mobile payments, online financial services, prepaid cards and other alternatives to traditional accounts are essentially the most popular tools for unbanked and underbanked households. While it first seemed that unbanked and underbanked individuals were generally coming from underserved communities, it is now clear that all types of households have left the traditional banking system behind.
As a result, businesses and alternative financial services providers, as well as traditional banks, will need to offer more advanced payment processing capabilities and intuitive accounts with plenty of perks.
Why regulators should tread lightly
American Banker recently reported that many economists and payment processing experts believe that entities like the Consumer Financial Protection Bureau need to ensure that new legislation does not hinder growth in the prepaid card, electronic payments and digital commerce markets. Some analysts would argue that the beginning of the massive move toward alternative financial services could be found at the same time as increased credit and debit regulations.
Debt interchange fees are likely the most commonly discussed levies on retailers and financial institutions that led to higher costs on products. As a result, many banks and businesses started to push prepaid cards, which are currently outside the purview of regulators. While standardization is necessary, too many fees will lead to an ever-growing number of households without any type of financial account.
According to the source, higher regulations could also stifle innovation in the payment processing sector. Businesses should ensure that they are launching electronic payments and prepaid card programs to garner larger followings with the underbanked and unbanked populations.