Beyond the Prepaid Basics: Adapting to Modern Needs (ft. Mastercard)

Prepaid solutions have come a long way since their humble beginnings as a service for the unbanked. Today, prepaid offerings are dynamic and versatile tools for everything from managing everyday finances to receiving government benefits.

In a recent webinar, Cross River’s Head of BaaS & Cards, Anthony Peculic, hosts Mastercard’s SVP, Account Management, George Siter, in an insightful conversation to delve into the latest trends in prepaid. Check out this video for all the highlights from their conversation.

Here are some quick highlights from our conversation.

• Prepaid cards started as a way to serve the unbanked population. Early prepaid cards addressed the needs of those who lacked access to traditional banking services. Features like instant issuance and lower fees made them an attractive alternative.
  
• The industry evolved with the entrance of new players. Big box retailers like Walmart offered prepaid cards with lower fees, making them more accessible. Then, digital challenger banks brought a renewed focus on user experience, specifically to attract younger demographics.
  
• Prepaid cards offer unique advantages over traditional debit cards. Prepaid cards provide instant access to funds and can be a budgeting tool for those who prefer to silo their spending. They can also be used by businesses to disburse funds or offer incentives.
  
• Early prepaid economics relied on fees but this model has shifted to interchange and user experience. In the past, prepaid cards generated revenue through fees charged to the cardholder. Now, the focus is on interchange revenue (fees paid by merchants for each transaction) and features that encourage cardholder usage. Issuers look for ways to extend the lifecycle of the card (e.g., direct deposit) to benefit from ongoing transactions.
  
• The balance between feature development and corresponding costs is crucial. Adding features like contactless payment can increase usage and retention but also comes with a cost. Issuers need to carefully consider the return on investment before implementing new features.
  
• The commercial prepaid market is growing due to new use cases. Prepaid cards are being used for a wider range of commercial purposes beyond payroll, such as incentive programs, freight payments, and even class-action lawsuit settlements. This growth is driven by the potential to reduce costs and improve efficiency compared to traditional payment methods.
  
• Earned Wage Access (EWA) is a disruptive innovation in prepaid. EWA allows employees to access their earned wages before payday through a prepaid card or account. This is seen as a major differentiator in the payroll space, offering convenience and financial security to employees. There are some regulatory questions around EWA, but the industry is optimistic about its potential.
  
• Prepaid cards are being used for government disbursements and social programs. The Direct Express program is the largest public sector program, disbursing government benefits through prepaid cards. This success story paved the way for other prepaid use cases in government programs, such as Medicare and Medicaid disbursements.
  
• Generational differences are shaping prepaid features: Millennials and Gen Z expect a faster and more interactive experience with prepaid cards. Features like real-time feedback mechanisms and instant updates through APIs are becoming increasingly important. Prepaid users also value rewards programs, but the economics of offering these rewards in prepaid cards are challenging.
  
• The line between prepaid and debit cards is blurring: While debit cards can offer features like overdraft protection and certain insurances, prepaid cards offer similar functionality and often have slightly better economics for issuers. The decision of which type of card to offer depends on the specific needs of the program and the expectations of the target consumers.

Watch the full recording of the Cross River x Mastercard webinar here.