Prepaid Card User Snapshot: Who They Are, How to Reach Them (Spring 2013)
By Bill Grabarek, Senior Editor
Acxiom consumer data shed light on current and future prepaid customers.
Industry experts estimate that prepaid—despite its exponential growth—has barely made a dent in reaching underbanked consumers. And evidence suggests that targeting younger consumers also might be fertile ground for providers looking to grow their portfolios. To help providers better understand who already uses prepaid cards and who might like to in the future, Acxiom Corp. has released data that provide an extensive look at consumer payment behavior.
By understanding consumers and why they use certain payment methods, prepaid card providers can develop better methods to effectively capture and retain customers. Acxiom, a Little Rock, Ark.-based enterprise data, analytics and software-as-a-service company, examined a variety of consumer characteristics and behaviors, including economic stability, banking relationships and preferred payment methods.
Prepaid Users Now
The typical household of a GPR prepaid user includes a wide range of ages (11 to 54), with the household’s primary individual between 26 and 55 years old, according to Acxiom. Nearly 70 percent of prepaid card users have a high school diploma but no college education. More than 60 percent have an annual income or net worth less than $50,000, and more than 40 percent rent a home.
Although several consulting firms have cautioned the industry against assuming underbanked consumers aren’t using the Internet and social media, Acxiom’s findings suggest prepaid users are much less likely than the average to be “digitally engaged” or use social media.
“Prepaid users are not a single monolithic group. Some are using the Internet and social media heavily, but there are many who are not,” Marc Trudeau, financial services industry strategist at Acxiom, tells Paybefore.
“Virtually everyone has a mobile phone, but the key word is virtually. Fewer of the prepaid customers have mobile phones compared with other [consumer groups], such as credit card holders. Do [prepaid card users] have smartphones? They might, but that doesn’t mean they have data plans,” Trudeau says.
“What we’re saying is that there is a significant population of underbanked individuals you just can’t reach via the Web,” he says, adding that these subtle nuances have “big implications for how we attract and retain prepaid users.”
The first step in attracting and retaining prepaid customers is to better understand consumers’ payments preferences and financial circumstances, according to Trudeau. In addition to demographic data, Acxiom researched the disposable income of prepaid, debit and credit card users and developed the Economic Stability Indicator. ESI is correlated with risk scores such as FICO and can be used as a metric by credit card issuers in “invitation to apply,” or ITA, campaigns. However, Trudeau says the metric also serves an important purpose in prepaid.
“The less economically stable you are, the more likely you are to use prepaid cards. It’s that simple,” he says. “When you look at individuals currently using prepaid cards, they’re typically underbanked or underserved, in the lower economic spectrum and often younger, which correlate to being less economically stable. Those three factors highly correlate to ESI.”
Acxiom also researched prepaid opportunities by examining whether they switched payment methods in the last six months—or were planning to switch. “Not just switching brands,” Trudeau says. “For example, if you are always using cash, are you happy with that or would you rather use something else?”
Less than 6 percent of consumers switched their primary payment method in the past six months; however, more than one-quarter of them would consider changing their primary payment method— which represents approximately $700 billion in annual spend, according to Acxiom. (See Fig. 1.)
Getting consumers to switch payment method requires different incentives based on what they currently use. Credit card users have a strong preference toward better rewards (77 percent), while debit and cash users focus more on convenience and fees. Controlling spend also is key for a large segment of cash (39 percent) and debit (28 percent) users. (See Fig. 2.)
Convincing consumers to change how they spend comes with a caveat, according to Trudeau. “Once consumers reach the age of 45, they’re almost definitely not going to switch. They’re sticking with their current, preferred payment method,” he says.
Reaching Future Prepaid Users
Fallout from the Durbin Amendment to the Dodd-Frank Act, namely debit interchange restrictions, has resulted in increased checking fees, leading some consumers to consider other payment methods.
|Wooing the Next Generation
Generation Y, the population currently between the ages of 18 and 34, will account for 46 percent of the nation’s income and will represent 73 million consumers by 2025, according to Javelin Strategy & Research’s recent study, “A Tale of Two Gen Ys: On the Road to Long-Term Banking Profitability.”
To achieve Gen Y loyalty, prepaid providers must provide products with inventive and useful prepaid features, such as advanced electronic account management capabilities— particularly mobile—according to Aleia Van Dyke, Javelin payments analyst. More innovative prepaid features, such as tools designed to help users establish a credit history, make P2P transfers or use geolocation to help redeem offers, can help build loyalty, especially from the segment of the Gen Y population between the ages of 18 and 24.
“Looking forward, we will begin to see more prepaid cards come to market with advanced features that leverage emerging technology to meet consumers’ needs,” Van Dyke says. For example, some providers have begun offering mobile deposit capture, which enables consumers to make deposits by taking a picture of their checks with their mobile phones.
Javelin’s Gen Y research stresses that “the success of any financial offering will be shaped largely by a provider’s ability to provide satisfying online- and mobile-centric banking access, personal finance management control and insight, helpful financial alerts, and the practicality of paying bills and moving money to accounts and friends—all within a simple, intuitive user experience.”
Adding to that pool of prospective prepaid customers, according to Acxiom, are consumers in their late teens who are looking for banking relationships and aren’t tied to or interested in traditional banking services.
“The future of prepaid are those 18- to 25-year-old [consumers] who are starting to build their financial lives, and they are looking for something fundamentally different than a lot of what has been out there,” says Trudeau.
The payments industry has taken notice. The result, he says, is the spate of GPR prepaid cards launched by banks that recently have joined the more established GPR cards on the market. Financial institutions such as Fifth Third Bank, Synovus Bank, PNC Bank, BB&T, U.S. Bank, Regions Bank and Chase have begun marketing GPR cards since late 2011. “These products are essentially a DDA account on a piece of plastic,” he says.
The size and receptiveness to prepaid of this demographic make it an important one to prepaid providers. What’s more, attracting consumers at this age improves providers’ chances for long-term loyalty. (See sidebar above.)
“Research shows people tend to be much more loyal to their first financial provider and it’s very difficult to get them to switch after. It’s a tremendous opportunity,” Trudeau says. “The key is having the right product—the most convenience and the right features.”
The next generation of prepaid users might be much more economically diverse than the first generation, which means that they could fundamentally alter the provider economics of the prepaid business, Trudeau says, not to mention significantly cannibalize the core checking account business of traditional banks.
Just as there are differences in banking habits across generations, there are differences in how to reach them. What might have been effective in the past won’t work with younger generations. “How does a bank market a checking product? It’s usually through direct mail,” Trudeau says. “Think about that checking offer, in which these [consumers] must first open a piece of mail, then go into their local branch to open a checking account and receive a debit card. Research shows 18-year-olds generally don’t read their mail, they certainly don’t want to go into a building and they don’t want to ever have to write a check in their lives if they can avoid it.”
Not only must different payment methods be offered as others, like checks, fall out of favor, but banks and prepaid card providers also must employ fundamentally different ways of marketing to these individuals, according to Trudeau. Digital channels are a great way to target the younger demographic but might reach only 70 to 80 percent of the market, he notes. “That’s why you need to leverage partnerships and add physical locations. Look at what American Express is doing with its Bluebird product,” Trudeau continues. “American Express is leveraging its merchant partner’s [Walmart] massive physical presence to reach a much broader audience than it could reach through direct mail or online marketing. I think we’re going to see a lot more of that.”
Ultimately, for prepaid providers to thrive in the very near future, they need to target young adults. And to do that, Trudeau says, “online, social media and digital marketing are going to be the primary focus.”