FinCEN has applied a limited regulatory framework since 1999 to certain prepaid products as part of the money services businesses regulations applicable to sellers, issuers, and redeemers of stored value. Under FinCEN’s proposal, non-bank providers of prepaid access would be subject to comprehensive Bank Secrecy Act (BSA) regulations similar to depository institutions.[From FinCen Proposes New Rules for Prepaid Card Programs]
Prepaid cards are already under attack from ill-thought through regulation of the payments industry anyway. This is a bad thing, because prepaid cards — or, more generally, pre-paid transaction accounts of one form or another — are a key tool for increasing participation in financial networks. We should be looking for ways to increase financial inclusion, not reduce it.
The Center for Financial Services Innovation (CFSI) has written to Rep. Barney Frank and Senator Chris Dodd asking that prepaid cards – including government benefits cards, general purpose prepaid cards, payroll cards – be exempt from the fee determination set by the Federal Reserve Board under pending legislation.[From Center for Financial Services Innovation Asks for Prepaid Card Exclusions]
Encouraging people to remain the cash economy does not help in the “war on terror”, or the war on tax evasion, the war on corrupt politicians or anything else. There is a net social benefit to getting people to use cards instead of cash, and we should be making it is a simple and inexpensive as possible for the excluded to participate. We should be easing the regulatory burden on non-bank prepaid schemes with a maximum balance of, say under $500 or so.
As in the US, in Europe there is tremendous growth potential in a prepaid market that is not hampered by inappropriate regulation.
Back in Europe, research commissioned by MasterCard shows the value of the European open loop pre-paid card market is expected to see an average annual increase of 26% between now and 2017, when it will hit $156 billion.
The research, conducted by Boston Consulting Group, predicts that the UK will remain the largest market for prepaid cards in Europe, accounting for 25%, with Italy making up another 20%.
According to the research, however, it is the less economically developed, cash based prepaid markets within Europe that will see the highest rates of growth between now and 2017, as they increasingly adopt pre-paid. For example, the value of the Nordic market is expected to increase by an average of 44% annually to reach $9.3 billion and the Central and Eastern European region by 42% each year to reach $10.1 billion.
The adoption of pre-paid by governments in Europe is a key driver in boosting the size of the market, reaching $43 billion by 2017, with $18 billion of this expected to stem from the UK public sector.[From Finextra: MasterCard pilots debit card with display; unveils MoneySend iPhone app]
There’s plenty of activity in the prepaid space, not just around cards, that would suggest that the bullish projections for the sector remain correct. I’ve just bought two more prepaid cards (in US dollars) for my kids, for example, and the teenage market is one of the obvious niches. (Although I had to say that the cards were for me, because according to the branch of a well-known retail chain where I bought them, children under 16 are not allowed to use them — I’ve no idea why not.) Finding new products for teenagers and students is an easy way of selling more products to people like me.
According to PayPal, “the Student Account eliminates the hassle of everyday money exchange between parents and teens, while giving teens the chance to learn good spending habits through the experience of being responsible for their own money. Parents can establish up to four PayPal sub-accounts for their teens, transferring funds into those accounts when needed, on a one-time or recurring basis.”[From PayPal Introduces Student Accounts for Teens]
This seems like a pretty good product, and if it was available in the UK then I’d give it a try. My kids do buy stuff online, but I generally use my credit card to buy stuff for them because I don’t want them using their own debit cards online, although I did to an experiment with no.2 son recently and gave him a prepaid card to go and buy something online because I wanted to see what he thought about the process (he was OK with it, even 3D Secure).
Giving them their own prepaid accounts and bounding them seem like a good idea. But since most of what they buy isn’t online, I’d probably rather give them teen debit cards that are sub-accounts from my own credit card, as this would deliver more flexibility and save me time and effort. If could set a limit as to how much they can spend per month and set the categories they can spend it on, that would be great. But moving on, teenagers aren’t the only niche worth paying attention to.
The research also finds the roll out of pre-paid by corporates will grow rapidly, with their replacement of lunch vouchers a surprisingly big factor – worth $8 billion by 2017.[From Finextra: MasterCard pilots debit card with display; unveils MoneySend iPhone app]
Hold on… lunch vouchers? Well, yes. And if the regulators raise the cost of prepaid cards, I predict the lunch voucher market will grow substantially! I was told by an authoritative sources that in Hungary an estimated 20% of the cash in circulation in the country is not fiat currency from the central bank but privately-issued lunch vouchers (provided by suppliers such as Sodexco and Accor). Perhaps I should add lunch vouchers to my list of “near currencies” (such as WoW Gold and Facebook Credits) that might start eating into the cash market.On a related note, I’m going along to the Financial Services Research Forum summer seminar in London on 6th July. This in connection with our work on privacy and financial services as part of the Technology Strategy Board’s PVNets project and I’m looking forward to expanding my knowledge about the intersection of credit, exclusion and privacy. I’ve a feeling that for some of our customers, addressing financial exclusion remains a significant “win-win” (horrible phrase, I know) opportunity. The seminar is free and there are a few places left, so go and sign-up and I’ll see you there.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]