Jun 10, 2013 Sean Albert
While not using traditional financial services can pose challenges, it doesn't have to create problems. For many Americans, finding the solutions to how to cope in a modern world without the use of a mainstream bank is a process that is already in progress. These individuals - often referred to as the unbanked - have grown fond of a host of alternative options, including replacing credit or debit tools with prepaid options, such as ACH cards. These payment methods can give users access to many banking resources that they may be barred from otherwise, and this can have a profound effect on their overall well-being.
Prepaid card use accelerating
According to a new report from Global Industry Analysts (GIA), the market for prepaid cards is set to reach a staggering $2.1 trillion by 2018. The firm noted that this growth is being driven largely by demand from the unbanked and the financial services sector, which is increasingly developing alternative payment technologies in hope of capturing the market. GIA also emphasized that ecommerce has had a major effect on how often prepaid cards are used. Some consumers may favor them for online purchases.
The organization explained that prepaid options such as ACH cards are emerging as a viable alternative to standard debit cards. Financial services providers may now be able to appeal to a wider demographic while also ensuring that unbanked customers, who may be less financially stable in some cases, do not cause monetary losses over time. These benefits may have the strongest effect on American companies, as the United States is the world's biggest market for prepaid cards, GIA pointed out.
Of course, the unbanked isn't the only group that is clamoring for alternative transactional technologies - the underbanked, who tend to have slightly more access to traditional banking services, also play a big role. Javelin Strategy & Research found that the underbanked, as well as young consumers, were the most common users of prepaid cards at 18 percent for both groups. Possibly demonstrating the likelihood that that the underbanked rely on these tools heavily for important transactions, these people were found to reload higher amounts of money onto their cards than other consumers.
Javelin noted that the reason behind the growing popularity of prepaid options isn't solely based in functionality. Vendors that can can provide additional rewards and capabilities, such as integrated mobile tools, are likely to see spikes in adoption.
"Today's prepaid features match and even surpass the features of many checking accounts," said Beth Robertson, certified cash manager and director of payments research at Javelin. "Functionality that can enable consumers to manage their account using their mobile device or social media account, establish and build a history that can be used for credit-issuing or enable person-to-person transfers provide high value to underserved consumers."
Vendors have the power
One important thing for alternative financial services providers to remember is that they can make a significant difference in the success of prepaid cards. If they invest wisely, they can launch technologies that are not only highly useful to key demographics, but enjoyable to use. By ensuring that their payment methods offer more than just the standard qualities, merchants can incentivize use among unbanked and underbanked consumers.
The key is this - the core audience for prepaid cards needs a way to manage their finances, so while sometimes getting a prepaid card isn't exactly a choice, whichever option they go with is fully within their control. As the market for technologies like ACH cards accelerates, it is critical that providers strive to supply an excellent overall experience to remain competitive.