Open-Loop Prepaid: The Jury is Still Out
Welcoming Scott Baker & Pete Emrick
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Issue #20
Interest in prepaid cards has never been higher. Industry leaders continue to emphasize the size of the prepaid opportunity, and processors are competing aggressively to establish their presence in this space. And yet the profitability of open loop (network branded) prepaid programs to date has not been particularly robust, and in some cases, the complexity of managing the programs has outweighed the potential return. Just last week, American Express announced it is pulling the plug on its healthcare payments cards, citing slower than anticipated growth and the significant level of investment needed to take the business to the next stage.
In this issue of On Payments, we discuss the challenges facing the open loop prepaid market and what this may mean going forward.
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Open-Loop Prepaid:
The Jury is Still Out
The jury is still out on prepaid. Although there is strong transaction growth, no dominant provider (either on the issuer or processor side), and lots of capital being thrown at it, there is simply not much of a profit pool. The competitive environment is much like the ‘wild west,’ and it remains unclear if this product can generate significant returns either as a standalone product or as a relationship builder.
FI-issued open loop prepaid cards are gaining momentum. They offer a number of benefits to consumers, providing easy, convenient, and secure ways to pay for goods and services at over six million merchant locations in the U.S. Prepaid cards offer ways to migrate cash and check payments to cards for gift giving, payroll, travel, and incentives or rebates.
The potential opportunity for prepaid could be enormous. At the Prepaid Expo in Las Vegas earlier this year, industry leaders continued to emphasize the size of the prepaid opportunity. During the various presentations some staggering numbers were presented—and judging by the conference attendance (over 2,000), the interest in prepaid is as strong as its growth potential.
At the same time, however, the market is still nascent and the FIs we have spoken with report very modest profits with their prepaid programs—if any at all. The combination of a large predicted opportunity, and issuer interest in prepaid fueled by numerous processors, is creating a chaotic marketplace with many companies chasing few current opportunities. The result: a great deal of noise but no clear path forward.
To read the full article, click here.
Welcoming Scott Baker & Pete Emrick
We are pleased to announce the addition of two new members to the Payments Compliance team, Scott Baker and Pete Emrick.
Scott Baker joins us as a Manager in our new Payments Compliance practice, bringing 20+ years experience in the payments industry. Prior to joining Dove, Scott was a Business Systems Analyst at First Data, where he gained significant expertise in program maintenance and development. He has also conducted extensive work in the regulatory change arena with the major credit card companies. He can be reached at 402-501-8801 or sbaker@doveconsulting.com.
Pete Emrick joins us as a Senior Manager, also in our Payments Compliance practice. Prior to joining Dove, Pete had been with Visa since 1983, where he held senior positions in Debit, Card Operations, and Member Relations. Most recently, he was Vice President of Acquirer and Processor Relations, responsible for managing the business relationships and marketing efforts with major acquirers and processors. Before Visa, Pete was with Commerce Bank of Kansas City. He can be reached at 415-848-4668 or pemrick@doveconsulting.com.
Do you know someone with deep expertise in payments strategy?
Dove is currently looking for senior level consultants with financial services and/or consumer payments experience to join our team. Our clients include leading banks, technology providers, and EFT networks, for whom we address important strategic issues in payments and retail banking.
For a more complete description of the position and what we are looking for from applicants, click here.