Can credit unions capitalize if banks shift to prepaid?

A recent report by Aite Group claims that shifting consumers from debit cards use to prepaid cards is a ‘smart’ way to help banks recoup lost revenue from reduced debit interchange fees.

“Big banks are anticipating a significant loss in debit interchange,” states Ron Shevlin, senior analyst at Aite and author of the report. “Their responses to this have been a little like chickens running around with their heads cut off.”  Eliminating free checking, adding new ATM fees and killing reward programs have all surfaced as ways to make up for the expected revenue losses caused by Durbin.

But that’s not the smartest way to go. Shevlin recommends that banks increase their prepaid market focus, rather than opt for negative strategies that will lead to “unwanted customer behavior” like an increase in checks and cash usage. The shift to prepaid cards, he explains, is feasible because there’s already a population of “heavy” prepaid card users and because prepaid cards are not exclusive to the unbanked, like many financial players believe. In fact, Aite Group believes that banks can recoup somewhere from 20% to more than 50% of anticipated lost debit card interchange revenue by marketing prepaid cards to their customers, particularly by focusing the product to their “heavy” transactors.

To achieve success, banks will need to educate and incentivize their consumers to use prepaid cards, much like they did in the debit space. This is where credit unions can step in and capitalize on a “new market” for prepaids. Traditionally, prepaids have been targeted to narrow segments, such as the unbanked and millennials.  With large FIs - and even Walmart - putting big dollars into marketing prepaid cards, demand from credit union members will grow even as cardholders continue to hold on to checking and debit.

Credit unions benefit most by having a prepaid solution in place that is both robust and flexible. This means offering members both a gift and a reloadable solution.  For more information about MAP Prepaid solutions, contact Herb Tajalle at 866-598-0698, ext 1616 or herb.tajalle@mapacific.com.