Blog: Prepaid Program Potential: 3 Steps Banks Must Take to Engage Millennials
By Phil Valvardi, Fiserv
As a host of competitors target financial institutions’ account holders, banks should embrace prepaid programs to prevent deposit or transaction runoff and to engage existing and future customers. Javelin Strategy & Research reports that in 2012 U.S. consumers loaded $150 billion onto prepaid cards and predicts a $45 billion load increase by 2017. Use of prepaid cards has particularly exploded within one key demographic for financial institutions: young adults between 18 and 34, the millennial generation.
Millennial consumers frequently use prepaid cards when it comes to gifting or as a budgeting tool that complements their existing checking accounts. While there are many nonbank competitors in the prepaid space, the ability to connect the prepaid card to an existing bank account is a major advantage that banks have over the competing nonbanks. Banks can leverage that advantage and promote a bank-centric prepaid card product to customers, particularly to millennials, as a better product alternative and to keep those transactions in-house.
Millennials Use Prepaid to Budget Spending and Saving
Mercator Advisory Group found that in 2013, 25 percent of prepaid card buyers used prepaid to budget their spending or to help a family member or friend budget. Young adults between 21 and 34 have turned to prepaid banking tools to save money, avoid accumulating credit card debt and closely track their finances. Through prepaid cards, the payment industry already is capitalizing on key characteristics of this generation, such as their mobility and their close familial relationships.
Institutions looking to capitalize on the rapid growth of prepaid card spending need to think differently about attracting and retaining consumers in this high-value demographic. Here are three steps for institutions to expand their base of millennial prepaid users.
|Determining Prepaid Program Potential – The popularity of prepaid cards among young adults suggests that financial institutions should consider introducing or expanding prepaid programs. Banks should begin by:
Rolling Out Prepaid
Properly implemented, a bank’s prepaid program will align with the market opportunities represented by its current retail account base. The program will block competitors attempting to make inroads into the bank’s account base and will help establish new accounts from within its geographic footprint.
A successful business plan for entry into the prepaid market should follow these basic steps:
Step 1: Start Young
To foster the loyalty of youngest millennials, who are still financially tied to their parents, banks should offer programs that enable parental monitoring of prepaid card use. By facilitating parental oversight of prepaid accounts, banks also are able to facilitate electronic deposits onto prepaid cards and add to the financial literacy of this up-and-coming generation. As the availability of free checking accounts declines, younger consumers often are drawn to prepaid debit cards to help budget and manage costs. An added benefit to on-the-go millennials: As long as prepaid debit cards are registered, many providers shield card balances from loss and theft.
Step 2: Showcase Mobile Capabilities
For banks looking to provide valuable customer service that simultaneously reduces processing time and costs, mobile deposit is a game changer. This trend is also true for prepaid, as many banks now allow customers to use their smartphone’s mobile deposit capabilities to deposit a check onto their prepaid cards. Millennials are the first generation to grow up using smartphones, so tech-savvy banks would be wise to meet these consumers where they prefer to conduct their business: on their mobile devices. Prepaid providers must move beyond just mobile load and reload capabilities, as millennial consumers want to be able to manage all aspects of their prepaid accounts electronically and on-the-go. Access to mobile account management, prepaid balance alerts and mobile money transfer are essential capabilities.
Step 3: Leverage Digital and Physical Outreach
To best capture the emerging and growing millennial market for prepaid cards, banks must effectively market their prepaid offerings. In this marketing effort, banks of all sizes must understand the different ways of reaching the next generation of financial customers. Just as millennials rarely write checks, they also rarely respond to direct mail marketing. Focus on e-mail, online and social media channels to reach these younger consumers. Additionally, consider adding a physical component at a major retailer or local thoroughfare to reach a greater demographic mix of potential prepaid users.
Safeguarding Transactions and Millennial Relationships
Varied competitors are implementing prepaid programs to target the account relationships of bank customers, particularly millennials. By offering bank-centric prepaid programs and bank-branded gift cards, banks will successfully engage millennials and their parents. Banks should act now to provide a prepaid solution to their retail customers because if they don’t, a mass of consumers’ DDA accounts could easily be lost to the competition.
Phil Valvardi is general manager of prepaid solutions at Fiserv. In this role, he oversees the prepaid processing and program management services Fiserv provides to financial institutions, including general purpose reloadable, incentive and gift cards. Phil can be reached at [email protected].