MasterCard: Prepaid Opportunity in Europe Is Huge; Education Gap Persists
By Loraine DeBonis, Editor-in-Chief
At the 2013 MasterCard Europe Prepaid Conference in Rome last month, the payments network revealed its latest prepaid research and discussed the trends and regulation shaping the industry in Europe. The overarching theme: Opportunities are significant for B2B, government and consumer applications, particularly around mobile money, but the industry must work harder to overcome education gaps at the consumer and regulatory level.
“There are close to 28 million MasterCard prepaid cards in Europe, 15 percent of which are contactless. And, we’ve approved more than 600 new programs since last year,” said Matthew Lanford, senior business leader and head of prepaid Europe. Although not all the new programs are live in the market, Lanford is positive about prepaid momentum across the region.
|Fast Fact – B2B prepaid applications already account for the second-highest gross dollar volume in Europe at $133 billion, behind $150 billion in GDV for consumer prepaid programs, according to MasterCard-commissioned research. By 2017, MasterCard predicts that business prepaid will become No. 1 with a projected $325 billion in GDV.For more on B2B prepaid, check out the Fall issue of Pay Magazine, which will be hitting subscribers’ desks this month.)|
“Government benefits payments are picking up steam, with the 32nd council in the U.K. adopting a MasterCard solution. I’m definitely seeing the sentiment turn, and governments are realizing that prepaid offers benefits not only for government to cut costs but also for constituents,” he told Paybefore at the event.
Despite this growth in benefits disbursements programs, some legislators and regulators in the European Union don’t understand prepaid, particularly when it comes to financial inclusion efforts. “Many people misunderstand what it means to be financial excluded,” Lanford continued. “We hear from regulators in Europe who say, ‘We have no financially excluded.’’’ The reality is that in countries where banks are required to offer current accounts, they often don’t include a debit card, so consumers may have an account but no transaction device, he explained.
|Sound Bite – During a rousing keynote address Swedish author and “futurologist” Magnus Lindkvist challenged the audience to stop thinking about the market as a zero-sum concept “as if there is only one market and we can only slice it up.”Lindkvist said, “It’s time to wake up because we have a choice to make. Do we want to compete or create? … If we want to live in a progressive world, someone in here needs to create.” Lindkvist added that companies can’t be afraid to fail. “The experimental mindset is disappearing,” he continued. “The first attempt to do something usually flops, but very often failure reveals potential.”|
Understanding Financial Exclusion
On day one of the conference, MasterCard released its latest findings on financially excluded and underserved consumers in Europe, which challenged some conventional ideas about who is financially excluded. For example, the research found that only 2 percent are immigrants. The study also revealed that the industry has a lot of work to do in raising awareness—nearly half of respondents had never heard of prepaid cards.
Ipsos MORI conducted the “Road to Inclusion” study in June and July 2013, using a mixed-method quantitative survey and ethnographic approach. In all, 631 people were surveyed and 36 households took part in day-long ethnographic interviews. The study covered six European countries: the U.K., France, Italy, Spain, Poland and Russia, although the results show attitudes and behaviors don’t differ that widely by geography, according to MasterCard.
Research participants include the financially excluded (those that do not have access to formal banking facilities) and the underserved (those that do not have access to any form of electronic payment).The report shows that although respondents identified many potential benefits of prepaid cards (once products were explained), general consumer awareness of prepaid remains limited:
- Only 11 percent of respondents had used prepaid cards
- 43 percent had heard of prepaid cards but not used them
- 46 percent had never heard of prepaid cards
Despite this limited awareness, there were encouraging signs of interest in prepaid among respondents:
- 32 percent said they would like more information on prepaid cards
- 41 percent said they would benefit from prepaid cards by not having to carry cash all the time
- 25 percent said prepaid cards would help them control their spending
Both groups share the most popular reason for not having a bank account: 25 percent say they don’t have enough money. Other reasons were: they “don’t want or need” a bank account, aren’t allowed to have a bank account, or don’t like or trust banks.
“In Western Europe alone, the population of unbanked and underbanked totals 93 million people. What’s interesting is that prepaid cards can really be the bridge for so many to feel financially included, keep their money safe and to learn more about budgeting,” said Jennifer Rademaker, senior vice president of core products, Europe, at MasterCard. “This road is also part of being socially and technologically included, and we need to do more to educate these groups about the possibilities.”
|rePower Going Global –A key piece of MasterCard’s strategy to grow prepaid in Europe is expanding the reach of its rePower reload network to more European countries and adding partners, according to Matthew Lanford, MasterCard Europe’s head of prepaid. At the 2013 MasterCard Europe Prepaid Conference in Rome last month, Lanford said rePower now is available in Italy, Poland and Spain, following its initial launch last year in the U.K.In addition to its partnership with voucher provider Ukash, MasterCard now is working with Austria-based paysafecard, which markets e-vouchers at 450,000 retail locations, to help drive rePower’s expansion and reach more unbanked consumers, he said.
MasterCard’s rePower service targets underbanked European customers that deal almost exclusively in cash. Consumers may use rePower to load cash to prepaid MasterCards at a POS terminal or by converting currency into vouchers, which can be redeemed on the MasterCard rePower Website.MasterCard began its European rollout of rePower in the U.K. late last year, working with Ukash and processor CQR Payment Group, which handles acquiring, processing and customer service. Funds are immediately available on the prepaid card when consumers redeem vouchers on MasterCard’s rePower site. Early indications suggest cardholders using the rePower network to reload prepaid card funds have a 20 percent increase in transaction volume, Lanford told conference attendees.
Claire Dudley-Hodson, business leader, prepaid product Development, MasterCard, added that the network plans to roll out rePower with its voucher partners in 49 countries over the next couple of years, with a POS solution to follow.
Jason Field, prepaid product leader, MasterCard, added: “We think we can overcome the barrier to card usage in four ways: better education on inherent safety mechanisms, such as payment protection; demonstrate honesty and transparency around fees and other charges; demonstrate freedom to purchase in both real and online worlds; and demonstrate better how prepaid can be used as a savings device.”
Dealing with Potential Interchange Caps
Not surprisingly, one of the issues that came up during the conference was proposed interchange regulations that the European Commission proposed in July. The EC has proposed a 0.3 percent cap on credit card fees and a 0.2 percent cap on debit and prepaid card fees. Interchange fees in the European economic region currently range from 0.1 percent to 2.5 percent on payment card transactions, and some fear that reducing interchange could hurt prepaid card business models and drive up costs for consumers.
While Lanford is concerned about the implications of a cap and the EC’s proposal to conspicuously label cards (debit, credit, prepaid and commercial), he told Paybefore that program managers and issuers need to be looking beyond interchange for their revenue—cap or no cap. “You have to create a richer value proposition for the consumer,” he said. “Interchange can’t be your only revenue source or your program will never be successful.”
Lanford pointed to programs, such as the Qantas frequent flier program in Australia that combines loyalty, flight check-in and prepaid, as well as a recently launched program in Italy for ENI gas stations that also combines a prepaid spending card with a rewards program that enables cardholders to earn discounts on gas and other merchandise.
“All of these things whether it’s mobile, whether it’s MasterPass or loyalty are really going to drive prepaid as the card becomes more than a payment vehicle,” Lanford concluded. “It comes back to the emotional needs consumers have. You have to give them a reason to want this card that justifies the price. Prepaid is not competing with debit or credit, it’s a complement. It’s not just for the financially excluded; it’s for everyone. By building richer value propositions, along with technology, MasterCard and our partners have the ability to grow the category in Europe and around the world.”