News & Resources

Why lawmakers shouldn't hinder prepaid card growth

Jun 10, 2013 Dave King

Prepaid cards continue to be among the most rapidly growing types of financial services in the United States and abroad, as these products come with little risk and several advantages. Likely the biggest area of growth for the industry has been in the unbanked and underbanked populations, in which the Federal Deposit Insurance Corporation estimates 10 million and 24 million households reside, respectively.

The financial crisis served a crushing blow to traditional banks, especially those that were the biggest providers of credit and debit cards. Many consumers began to no longer trust these institutions because of their involvement in the economic crisis. Out of the rubble, though, rose a new age of payment processing and financial services, with prepaid cards and alternative lending leading in growth among consumers and businesses.

However, several discussions in Washington might run the risk of hindering the prepaid card industry's growth, though this is still yet to be determined.

A potential threat
American Banker recently reported that Europay, MasterCard and Visa (EMV) chips might eventually become mandatory in the U.S., as these security precautions are already in place in many other first-world nations. EMV chips are an alternative to magnetic stripe cards, which are the most popular products in the U.S. currently. Banks have not yet started to produce and distribute cards with EMV chips yet, largely because of the cost.

However, the source explained that chip-and-pin access has become more preferable when it comes to security, which is a massive plus in today's highly risky digital payments landscape. Data breaches continue to rise, crushing businesses and consumers in some instances. Financial firms are often the most at risk, while payment cards have been the topic of much discussion when it comes to security refinements to be made.

EMV chips, though, might either make it impossible to distribute prepaid cards, or simply too expensive since the products generally have shorter lifecycles than credit and debit cards, the news provider stated. Still, lawmakers should be concerned with hindering the industry with legislation, as some experts have asserted extensive regulation of prepaid cards could be devastating in and of itself.

Thus far, the industry has seemed to thrive on internal oversight and best practices coming from some of the leading providers. Competition has proven successful in rooting out those providers extending hidden fees and other troublesome components, as consumers are less likely to use these cards.

American Banker added that one MasterCard study revealed that the prepaid card market will increase to $822 billion worldwide by 2017. Stifling growth in this industry could end up causing more issues for the U.S. economy.

Electronic payments bucking trends
ATM Marketplace recently reported that a new study from Javelin Strategy and Research projects prepaid cards and mobile payments to be more popular then checks and cash within the next five years. In the U.S., the source explained that the mobile payments market alone is expected to increase to $5.4 billion in 2018, up from $398 million last year.