Why The Future of Payments is Prepaid
“Banking is essential, banks are not,” Bill Gates famously said in 1994. Twelve years later, and this statement seems truer than ever before, thanks to prepaid.
At the time, the Microsoft founder was looking to the future of finances, and that time is now. While prepaid cards may have originally been targeted towards underbanked consumers with minimal access to financing options, PP cards have evolved into a product for everyone, and it is fast becoming the go-to way to make payments for many people throughout the world.
Prepaid cards are simple, secure, and accepted virtually everywhere. The debt-free cards resonate with the ever-growing population of people who were hit the hardest by the recent Great Recession–namely millennials and Gen Xers. Understandably, these individuals have become even more cautious about avoiding overdraft fees, high interest rates, debt, and possible damage to their credit. PP cards offer consumers the ability to escape from oppressive bank fees and seize control of their own finances, and people are paying attention. Seventy-three percent of consumers believe that prepaid could prevent them from going into debt, and 82 percent of consumers want payment cards that avoid overdraft or interest charges.
Prepaid is fast becoming the norm for the majority of people around the world, and it is already the fastest-growing form of payment in the United States. In 2003, PP cards accounted for 800 million transactions worth $20 billion. In 2012, the numbers were 9.2 billion and $220 billion, respectively. A report done by MasterCard estimated that the prepaid card industry will grow to $822bn globally by 2017, and this number isn’t even taking into consideration mobile payments or other transactions not linked to a physical card, as well as business-to-business transactions. As such, this estimate is well below the total potential prepaid market opportunity–the amount is actually in the trillions! By 2030, some financial advisors expect prepaid to actually overtake credit and bank debit transactions.
One of the reasons for its meteoric rise is that prepaid is popular across all income brackets. According to Business Insider, among PPcard owners, “28% earn less than $25,000 per year, 21% earn $25,000-$49,999, 26% earn $50,000-$99,999, and most surprisingly, 27% earn $100,000 or more per year.”
According to a study from Phoenix Marketing International (PMI):
Cardholders of all ages and income commonly view PP cards as playing a positive role in financial management.
Users showed a high co-ownership of PP cards and traditional banking products, suggesting that they saw the former products as a convenience rather than a necessity.
The PP industry is booming, the future of finance is open-loop prepaid cards, and it’s easy to see why: PP cards offer numerous advantages over traditional banking methods.
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