What If You Could Make Prepaid More Profitable?
By Glen Fossella, Urban FT
There are the big prepaid GPR programs (You know the names—Green Dot and Netspend) and then, pretty much, there’s everyone else. Funny, isn’t it, that GPR has not made a big impact in the banking sector, and by that I mean financial institutions offering GPR cards directly to consumers. A GPR card is a legitimate financial product after all; in effect, a way for financial institutions to provide service to consumers who may not want or qualify for a checking account, millennials who view prepaid cards as another way to manage their money alongside a traditional checking account, and a significant number of additional consumer segments for which a prepaid card is a better option than checking, credit and cash.
So, why have financial institutions largely ceded the GPR opportunity to nonbanks? Why doesn’t every bank and credit union not only offer a GPR card—as a teen card, cash management card, budgeting card or even a “turndown” card, for example—but build a business case around GPR? Financial institutions have the knowledge, infrastructure and capacity to do this, and GPR is about as straightforward as it gets as a product line extension for financial institutions.
OK, I get it; it’s about money and taking the risk of moving into uncharted territory. Although GPR is a debit product, it’s a variant of debit that requires some level of special handling and adds a number of new players into the mix, each of which takes a piece of the revenue pie. And, then there’s the reported stickiness (or lack thereof) of GPR customers. Just about at the point a GPR customer relationship is starting to recoup the cost of set up and service, the customer is likely to abandon his card. So, historically, the economics have been weak, which goes a long way to explaining why financial institutions have come to regard GPR as the red-headed stepchild.
What Does Russell Simmons Know?
But consider that many financial institutions that dipped their toes into GPR, just “threw the programs out there,” with little or no connection to their overall strategies or other services and no marketing follow-through, save for a marketing page on their Websites. What did we really expect? Compare that to the RushCard program, which just sold to Green Dot for somewhere between $167 and $200 million. This equates to over $200 per cardholder. What does Russell Simmons know that we bankers do not?
Let’s go deeper on that question: What if a financial institution could flip the GPR dynamic from that of an extra layer of cost and questionable financial return to one that encouraged stickier GPR relationships (i.e., GPR cardholders hanging around longer than the average of six months or so)? And, what if that financial institution could incorporate value-added features into its GPR cards so the product was actually superior to traditional checking accounts and also generated incremental fee income; not exorbitant, red-flag-inducing fees, but fees based on a fair and reasonable return for services rendered and competitive with alternative providers?
I believe that financial institutions of all sizes can do this and unleash the potential of GPR for the benefit of their customers and their bottom lines. In my opinion, the most effective way to do this is by linking GPR cards to digital banking capabilities—enabling cardholders to use their computers, tablets and mobile phones to control and manage the funds in their GPR prepaid card accounts, including paying bills, buying gift cards, transferring money, aggregating information on their financial accounts, initiating foreign remittances and more. And what if financial institutions could add extra glue to the GPR customer relationship, integrating discovery and explore features into the digital banking app, making it a multiple-times-per-day destination and increasing its customer touch points (not to mention improving the relevancy of a banking relationship, especially among younger consumers)?
The Answer Is Mobile Experience
Today’s financial institutions are looking for ways to be top of mind for consumers and for their card products to be top of wallet. As transactions move to self-service in branches and mobile phone-addicted millennials become an even more significant percentage of the adult population, keeping close to customers and maintaining competitive differentiation in an environment of basically fungible products is more challenging. Why wouldn’t financial institutions combine two proven concepts (GPR and mobile), both of which reside squarely in their wheelhouse, to extend their reach to new audiences or to expand their relationships with existing customers?
Financial institutions are dealing with an overload of information and scrambling hard to stay current—like developing a blockchain strategy and figuring out bots and natural language systems like Alexa. While it’s absolutely important to consider the future and I would never dissuade anyone from doing so, those types of issues are a ways off despite the hype. Plus small and midsize financial institutions likely will not lead development, although they’ll eventually benefit from it.
My suggestion is to deal with today’s environment today, using the tools at hand to capture market share, generate revenue and establish an extremely competitive market position, and attract and retain new customers that have non-traditional needs and wants.
GPR combined with digital banking is a stare-in-your-face opportunity that financial institutions are simply overlooking. The combination can be a game changer that flips the economics of prepaid and creates significant opportunity to tap new markets and generate incremental revenue.
Glen Fossella is EVP of enterprise growth at Urban GT, a provider of white-label digital banking platforms. Fossella has more than 25 years of experience in directing business development, business strategy, B2B sales, product marketing and product management in the technology industry. Glen may be reached at [email protected].
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.