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Why regulations won't crush the prepaid card industry

Dec 10, 2012 Sean Albert

The financial crisis was the most likely cause of a widespread shift in consumer behavior, one marked by the rise of alternative financial services as more preferable options for credit and banking needs. Prepaid cards have been among the most popular form of alternative finance and have proven to reach the unbanked and underbanked populations much more successfully than traditional banking options. One reason behind the popularity of prepaid cards for businesses is that they are not yet under the regulations as outlined by the Dodd-Frank Wall Street Reform Act, and more specifically, the Durbin Amendment. Avoiding debit and credit swipe interchange fees is a savory notion for businesses, banks and payment processors alike, and might be fueling the exponential growth of prepaid cards. Regulation might not be so bad after all
Money Morning recently reported that regulations might not always be a detriment to the payment card industry, and that companies that provide the prepaid cards should not be scared of the potential for increased regulations in the coming years. According to the news provider, regulation will help to standardize the industry in a way that improves legitimacy, something that would likely drive further revenues because of increased trust among consumers. The source asserted that because the most common users of prepaid cards are unbanked, underbanked and younger demographics, protections need to be put in place to help avoid potentially shoddy practices on behalf of some providers. Further, Money Morning noted that the number of unbanked individuals has increased from 14 million in 2009 to 17 million this year, illustrating the perpetual move away from financial institutions. Citing data from the Federal Reserve, the news provider added that unbanked household prepaid card users increased from 10 percent in 2009 to 18 percent currently. The same data indicated that prepaid card use is on the decline among fully banked households. Optimizing the experience for highest profits
The prepaid card industry, though it has been around for decades, is still relatively new in its current form. Businesses and other providers of the alternative finance product will need to be diligent when formulating their strategies, as legitimacy will be entirely necessary to push prepaid card use to its highest potential in the coming years.