Innovation Day: Fast-Growing Prepaid Market Offers Rewards, Risks
By Diane Brocklebank, PIF
The Prepaid International Forum (PIF) held its annual Innovation Day on May 11 in London. This was our third time hosting the event and the discussion focused on how providers are using technology to meet the needs of specific segments, how the industry can capitalize on being the fastest-growing payment product globally and what could derail that growth.
The prepaid industry, by leveraging technology, has been able reinforce its reputation for innovation over the last 12 months, and ensuring that consumer needs are met and in line with 21st-century spending behavior. This exciting movement offers both consumers and vendors more flexibility, allowing greater choice for all involved. For example, one presenter, Tide, has created the U.K.’s first digital-only business current account, bringing better banking to the SME sector. Meanwhile, Loot is helping millennials do more with their money by using smartphone and web-based tools to track their spending.
One of the most exciting things about prepaid continues to be its growth. Globally, the prepaid market is set to reach more than $500 billion by 2020, according to Mastercard-commissioned research from Euromonitor. What’s more, the compound annual growth rate for prepaid globally between 2012 and 2020 is forecast at 9.1 percent, compared with 6.8 percent and 6.1 percent for debit and credit, respectively. Presented by Darren Deal, head of prepaid, U.K. and Ireland, Mastercard, the research also estimates that prepaid in Europe will grow 18.6 percent during that time period, compared with 7.8 percent for consumer debit and 5.8 percent for consumer credit.
While those growth figures are encouraging, speakers noted that prepaid is a tough business model and upselling is the key to the future success of the industry. Mining transactional data is one way providers can cross-sell effectively and improve their overall value propositions. It’s not about competing with banks, it’s about offering something very different.
Staying on Track: Navigating the Challenges
Speakers on the day reflected on the challenges that face the prepaid industry and discussed responses it needs to make to ensure it can continue to grow strongly. While customer proposition must remain the primary objective, the industry must face the threats and indeed the opportunities that are offered by tougher regulation. The industry through PIF and other bodies strives to educate regulatory stakeholders on the low risk profile associated with prepaid and promote proportionate regulation. The regulatory environment certainly has put compliance at the forefront of our industry.
As we have said, regulation can be an opportunity. The industry welcomes the Second Payment Services Directive (PSD2) and its requirements for open APIs will be a key driver for innovation in backend processing. The requirement for financial institutions to open up their accounts to other parties turns payments effectively into a utility, an open platform. The ability to get access to consumer banking data and sell a product based on that data is a huge opportunity for prepaid providers.
The day concluded with a challenge to attendees. “We need to think about how we can stay ahead,” agreed the closing panel. “Banks have massive resources and we cannot afford to be complacent about that.”
Diane Brocklebank is an executive director of PIF, a not-for-profit body representing the prepaid financial services sector, and has played a pivotal role in the organization since its inception in 2007. Diane was elected to the PIF Board in 2015 and is responsible for developing the strength of the association’s offer to members and prospective members. Diane has over ten years’ experience of the prepaid industry and in 2016 she was among 29 payments industry professionals shortlisted for The Payments Power 10, an annual award to recognize the top 10 contributors to the global payments industry.
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