Viewpoint: Prepaid and Financial Capability Have Grown Up; Now They Should Grow Closer
Prepaid is officially a grown-up. After years as a fledging product trying to prove its worth in the market, the prepaid industry is now fully regulated (or at least it will be once the proposed CFPB rule is official), and it has reached a level of consumer adoption on par with other mainstream financial products, with more than 12 percent of all households having used a prepaid card, according to the latest FDIC study.
On a parallel track, the field of financial education has grown up, too. What used to be an industry narrowly focused on classroom-style education and “financial literacy” (i.e., what consumers know) has broadened its scope to address “financial capability” (i.e., what consumers do and how they actually behave). Evidence of this evolution can be found in the public sector, where the U.S. Department of Treasury’s Financial Empowerment Innovation Fund is investing dollars to develop, test and evaluate new ways to improve the financial capability of Americans and in the private sector where a growing number of startups, including ours, are building dedicated financial capability businesses through innovations in prize-linked incentives, gamification and mobile platforms.
|Focusing on financial capability means focusing on what actually changes consumer behavior, not just consumer knowledge.|
For prepaid, the timing couldn’t be more prescient. As the rapid pace of industry growth over the past five years slows down somewhat, program managers and other providers are looking for ways to increase revenue from existing customers, in addition to acquiring new ones. Financial capability can be part of that answer, by driving customers toward behaviors that improve the provider’s bottom line and the consumer’s financial health at the same time.
Focusing on financial capability means focusing on what actually changes consumer behavior, not just consumer knowledge. So what would it look like for prepaid and financial capability to become a closer pair? According to the foundational research on this topic by the Center for Financial Services Innovation, providers seeking to successfully incorporate the financial capability framework need to ensure the content and tools they develop adhere to four key attributes. They must be: 1) relevant 2) timely, 3) actionable and 4) ongoing.
Below, we explain how we think providers can incorporate these four attributes into prepaid card-related products and tools. And, because we’ve been working in this space for more than five years, we’ve included a few examples of how PayPerks goes about this.
Relevant: To offer relevant educational content to today’s modern prepaid customers (who are diverse and mobile-savvy) means that it must be bite-sized and engaging, available across multiple devices and, of course, bilingual. At PayPerks, we do this using short, illustrated modules that take about 2-3 minutes each to complete, incorporate cartoon-like images and characters, can be viewed on any device regardless of operating system and can instantly be translated to Spanish.
Timely: Being timely means communicating with consumers when you actually have their attention, like when they call customer service or when a financial choice is top of mind, like at tax time. We do this at PayPerks by offering our educational platform to customers when they’re first receiving their prepaid cards and are just trying to figure out how they work. We also target specific consumers with content in response to immediate past behaviors, such as highlighting a module about locating in-network ATMs after a user has racked up too many out-of-network fees.
Actionable: We all intuitively know that most advice, of any sort, is quickly forgotten if it can’t be put to use right away. Fortunately, financial capability tied to a prepaid card is by default actionable because the card is already in your hand. And the more features a card has, such as a savings purse or personal financial management tools, the more easily the customer can put their newly acquired knowledge about budgeting and saving to work. PayPerks further incentivizes desired consumer behaviors directly through providing points and rewards to users who demonstrate specific actions as they perform them.
Ongoing: Finally, financial capability will never produce lasting change if it’s just a one-time offering. Even the most relevant, timely and actionable advice is forgotten as the days pass and life gets in the way. Prepaid providers will need to stay committed to financial capability as an ongoing pursuit if they really want to see behavior change in their customers. At PayPerks, one tool we use is a monthly sweepstakes cycle to keep users coming back to our site regularly for new content and to incentivize them to keep earning new points each month.
Prepaid and financial capability are now in their respective primes. For prepaid providers that recognize this moment and make financial capability a priority, there is real opportunity to usher in a new phase of growth that can also have a significant impact on the financial health of the consumers they serve.
Arlyn Davich is the founder and CEO of PayPerks Inc., a financial capability and rewards platform based in New York City. Rob Levy is the company’s director for partner development and consumer impact. Arlyn and Rob may be reached at [email protected].