CFSI: Startups Filling Gap for Next-Gen Prepaid Services
As entrepreneurs recognize the market potential of serving the underbanked, many of the most cutting-edge payments startups are building their products and services around the existing prepaid infrastructure. And that innovation largely is focused on providing services not typically offered by established prepaid products, thus benefitting millions of underserved consumers, noted Center for Financial Services Innovation (CFSI) Managing Director Ryan Falvey. Speaking earlier this week as part of the prepaid executive summit at Card Forum in Los Angeles, Falvey cited the results of the CFSI most recent Prepaid Industry Scorecard, which gave the prepaid industry high marks for “core” services, such as payments, loading, cash access and customer service, but lower scores for “next-generation” services, including promoting positive use, budgeting and other features. But startups increasingly are filling those gaps, he noted. “The underlying prepaid infrastructure is allowing nonbank startups to create bank-like products in a very short period of time,” Falvey noted.
Falvey pointed to CFSI’s Financial Solutions Lab, an initiative managed by CFSI and JPMorgan Chase that aims to support innovations in payments that help Americans improve their financial health. Last year, FinLab ran its inaugural competition for early stage providers, with the theme of improving household liquidity. The more than 300 entries were notably—and somewhat surprisingly—heavy on prepaid, Falvey noted. “We expected to see a lot of blockchain companies; instead, we saw a lot of prepaid companies,” he said. Those companies provided an array of prepaid-based services, including bill payment and remittance, GPR-based savings accounts and virtual bank accounts.
And while FinLab still is sorting out the entries for this year’s competition—which is themed around helping consumers weather financial shocks—Falvey said he expects the latest batch of startups to be prepaid-heavy again. “[P]repaid is going to continue to be a dominant theme for innovators in the financial services space,” he said, especially as more young entrepreneurs continue to recognize the opportunity in the sector. And for established providers, those new entrants comprise an attractive pool of potential partners to provide complementary services, Falvey observed. “There’s sometimes a belief out there that these startups are looking to disrupt existing providers, but for the most part, they’re looking for partnerships—and that’s a big opportunity for established prepaid companies.”
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