School analyzes prepaid cards, underbanked population
Nov 01, 2012 Sean Albert
The Wharton School of the University of Pennsylvania recently explained the growing value in prepaid cards and other financial services. According to the report, the unbanked and underbanked populations in the United States comprise a massive potential pot of new clients for every business and financial institution, as the Federal Deposit Insurance Corporation estimates 34 million households fall into the category. While only one out of every 12 households is considered completely unbanked, an ever-growing number of families can be easily reached through traditional and new channels. The Wharton School explained that banks are now increasing efforts to launch prepaid card programs in higher numbers than ever before, as this has been viewed as the most profitable product in the current alternative financial services landscape. Small loans, including those made by short term lenders, have also been increasingly popular, though the source explained that many providers of these finances have difficulty turning a profit and underwriting. However, through the use of proven practices, banks and businesses can better mitigate the risks associated with short-term lending and capitalize on the gigantic pool of potential borrowers. Prepaid as paramount
The Wharton School added a note regarding the prevalence and reasons for success of the prepaid card market. "Credit is much more complicated in this space. If you can't get a credit card, then your only options are short term or pawnshop loans, and both are very expensive," Rob Levy of the Center for Financial Services Innovation told the school. "Frankly, there is no credit parallel to prepaid cards." In the coming years, many experts believe that prepaid cards will become the preferred credit method of customers and businesses.