Mar 14, 2013 Dave King
The underbanked and unbanked populations continue to rise in the United States and abroad, as many households have found new ways to avoid traditional financial services. Several reports indicate that tens of millions of individuals in the nation do not have a traditional financial account, such as checking or credit cards.
Many believe that this trend was created by distrust in the biggest banks following the financial crisis, while others view it as the product of consumer evolution. New payments technology and methods have become increasingly important for economic growth, largely the result of shifting consumer preferences for advanced transaction capabilities.
Electronic payments and prepaid cards have been among the most popular options for these populations, while economists believe that this trend will only intensify in the coming years. Businesses should consider launching an electronic payment or prepaid card strategy to capture the highest revenues from the unbanked and underbanked populations.
Prepaid moves into business purview
The Poughkeepsie Journal recently reported that many financial institutions and companies have launched prepaid card initiatives, seeking to differentiate their services from those of their competitors through new marketing strategies. According to the news provider, businesses have approached the prepaid card craze among unbanked and underbanked households to tap into new markets for revenue growth.
The source referenced a 2011 Federal Deposit Insurance Corporation study which revealed that 20 percent of U.S. households are considered underbanked, and as such use cash as their primary payment method. Further, the Poughkeepsie Journal cited the strategy of several businesses to create cards that can be used for one specific purpose, noting that underbanked households have started to prefer such products.
"It's a smart way to market a card," Aleia Van Dyke, a Javelin Strategy and Research analyst, told the news provider. "They're specifically going after an immediate need someone needs to fill."
Other businesses have used pop-culture icons in their marketing strategies, such as Justin Bieber and other performers.
Assessing prepaid benefits
Credit Unions Online recently explained that prepaid cards are becoming more popular because the products are generally more affordable and come with less risk than traditional banking methods such as debit cards.
"Unbanked and underbanked [people] are a popular market for these cards, which is one reason one might end up with a prepaid card," Gerri Detweiler of Credit.com explained, according to the news provider. "And it may be cheaper than a checking account, especially if you've been paying overdraft fees lately."
The source noted that prepaid cards also often come with stronger ease-of-use for consumers than traditional banking methods. Experts believe that the most important component of a successful prepaid card initiative is a differentiation between the products and other services, while hidden fees and fine print need to be kept to a minimum to ensure long-term revenue growth.
American Banker recently purported that the prepaid card industry runs the risk of converging with the traditional banking services market in the coming years, especially if vendors of the products do not offer unique options. According to the news provider, consumers might begin to view prepaid cards and checking accounts as the same product with two different names.
The source asserted that the accessibility of prepaid cards, as well as the ease associated with signing up for an account, remains one of the more crucial drivers of success in the market. However, businesses and financial institutions will need to remain vigilant with prepaid card offerings to ensure the long-term growth of the market.
By customizing a prepaid card and taking a unique approach to marketing, companies can capitalize on the increased popularity of these options among the unbanked and underbanked populations.