Viewpoint: Overcoming Prepaid Debit’s Value Issue
By Walt Granville, Cachet Financial Solutions
Churn is by far the biggest challenge facing prepaid debit card companies today. The Federal Reserve Bank of Philadelphia reports that prepaid cards remain in cardholders’ wallets an average of just six months before being discarded for other prepaid cards or for entirely different payment products. Prepaid companies looking to buck this trend and build truly sticky customer relationships need to start thinking in terms of providing value beyond just facilitating payments. Fortunately, with the right data and tool sets, deep sustainable loyalty can be within reach of any prepaid debit card program.
Technologies and cardholder behavior continuously are evolving, so prepaid card programs must evolve as well. For years, card issuers have relied on loyalty programs and discounts to acquire and retain customers. Changes in program economics, however, have forced many to water down or eliminate loyalty and discounting programs, resulting in decreased reloads and increased overall churn.
Fortunately for issuers, the changes in program economics coincided with the rise of smartphones and real-time analytics. Combined, these advances create new opportunities to develop loyalty by delivering personalized services through a preferred communication channel. Now, instead of offering costly discounts and rewards, which simply result in short-term promotional lift, issuers can add value by providing cardholders with tools and information that help them manage their financial lives. This approach, when done correctly, makes for a more engaging relationship, and engenders deeper, more meaningful customer loyalty.
Research reveals prepaid users are looking for help navigating their complex finances which presents a large opportunity for prepaid companies. Despite common belief, the majority of prepaid cardholders are banked. According to a study by the Pew Charitable Trust, 59 percent of prepaid card users have a checking account and are using a prepaid account to control spending. Of the 41 percent of prepaid users who remain unbanked, the majority aspire to have a traditional bank account and need a variety of fee-based alternative financial services. Since both user groups are tapping into prepaid as a component of managing their overall finances and not getting assistance through their current relationships, prepaid issuers have a very real opportunity to weave themselves tightly into the fabric of customers’ financial lives.
Consumers want help saving on daily purchases, developing and sticking to budgets, and making major life decisions like buying or leasing automobiles. They want to feel financially savvy, and they want financial services providers, like prepaid companies, to offer tools and services that will make that happen. But make no mistake: There is no cookie-cutter approach to developing programs for prepaid. Only by understanding its cardholders, their habits and their needs can a prepaid company ensure it’s delivering the kind of services that resonate with their customers and generate loyalty.
Consider the example of millennials. Representing 25 percent of the U.S. population and as much as $600 billion in annual spending, millennials represent a large and growing opportunity for prepaid card companies. Millennials are big fans of prepaid debit. Forty-five percent of millennials used prepaid cards at least once a month last year, according to the Federal Reserve. Millennials, those between 18 to 34 years of age, as a general category are entering their prime purchasing years. Millennials represent a broad category of individuals ranging from those just out of college and struggling to make ends meet to those who are recently married and upwardly mobile.
Millennials are unique in many ways. They grew up with the Internet and during the most intense technological boom in recorded history, which corresponded with a deep recession. This unusual set of conditions has influenced profoundly the millennial’s expectations, habits and needs, especially as it relates to technology and finances. Millennials demand high-quality technology as part of their user experience, are savings conscious and require straight-forward pricing. Given these stipulations, it’s not surprising that studies find that millennials are more likely than other groups to switch financial services providers.
So what do prepaid companies need to offer in order to attract and retain millennials?
The Card Account: A low-cost account with pricing that’s easy to understand, including access to no-surcharge ATM networks, is expected. In addition, offering a variety of reload options, including support for ACH transfer and check deposit with instant access to funds is critical, given the millennials’ need for real-time interactions and their sometimes-limited financial resources.
Mobile Interface: A mobile app that provides balance and transaction history is table stakes. The mobile interface needs to have a modern design, be easy to set up and integrate with all other account access points. Modern features, such as fingerprint authentication, mobile payment programs and mobile check deposit, are musts. Millennials desire to fully manage their accounts through the mobile channel, so all program features and servicing options, including IM chat servicing, should be available.
Money-Management Features: Millennials want tools that will help them to save and manage their money. Offering personalized budgeting tools with alerts and spend reporting can assist them with their No. 1 objective to control spending. Because many millennials are preparing for major purchases, providing a savings program where funds are scheduled to be deferred to a second budget or account are great tools for this population. Adding gamification to these programs encourages adoption and continued use of these services programs.
Financial Guidance and Access: Millennials, like all generations before them, have trepidation about making some of their first major financial transactions. The ins and outs of leasing apartments, purchasing cars, opening 401Ks and securing insurance are daunting. Offering access to educational materials to help navigate these channels can be a valued resource to cardholders. Using transaction and app usage data, issuers proactively can engage and assist their users in a personalized approach. Users who access certain resources that signal upcoming transactions can be messaged with additional information and can be offered access to other services, such as credit scores, mobile photo account applications for loan products and professional services.
These services will address the current needs and challenges of the millennial audience, will significantly increase engagement with the cardholder and will provide the user with a rationale to maintain their account. This rationale is a missing component from most programs in the market today.
Obviously, millennials represent only a portion of prepaid users, so it’s important for issuers to closely evaluate their marketable audience and to create programs that will offer the best mix of services for their target user group. That said, it’s clear from the market data that prepaid users represent an audience that’s seeking access to financial support, tools and services.
Here’s the bottom line: Rapidly changing technologies and consumer dynamics are forcing financial services providers to re-imagine service and delivery models. Empowering consumers with mobile apps and services that are engaging and deliver real value propositions will drive prepaid card usage and position prepaid card issuers to be integral to the everyday lives of cardholders. Now that’s loyalty.
Walt Granville is senior vice president of mobile innovation at Cachet Financial Solutions (CAFN). He has more than 20 years of experience in the highly competitive mobile, emerging payments, loyalty and card markets in the U.S., U.K., Germany, Spain, France, Turkey and Brazil. Walt can be reached at [email protected].
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore’s goal is to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.