[Dave Birch] On the MasterCard blog, Timothy Murphy was discussing prepaid cards and said that

Often being unbanked or underbanked is a choice due to the affordability of banking services, credit issues, convenience, and distrust of the financial system.

[From Bridging the Gap to Financial Inclusion | MasterCard Social Media Newsroom]

This is very true, and I think that prepaid instruments provide an excellent tool to help the unbanked and underbanked escape the cash economy. But these are not the limits of prepaid opportunity. I’m hardly underbanked, and I have way more prepaid products than credit and debit cards. I have a prepaid MasterCard sticker on my iPhone, a prepaid Euro card, a prepaid US Dollar card, a prepaid Canadian Dollar card and there’s a prepaid Orange Cash card in the hallway that my kids use. I today I used my newest payment instrument, the Barclays MasterCard prepaid card that’s in my new Orange “Quick Tap” phone.

Here’s one reason why I like having a few prepaid cards around. I lost my wallet. We searched the house from top to bottom, but couldn’t find it. (It subsequently turned up underneath an item of furniture a month later.) I knew it was in the house somewhere, but was flying to America the next day. Could have been a major problem. Fortunately, my three wallet system worked perfectly.

My main wallet, the one that I lost, holds my Barclays debit/ATM card, my current default card (in this case, a John Lewis MasterCard) and an MBNA Amex card that I’m playing with because it’s contactless. It also holds my driving licence and a couple of other non-payment cards (e.g., my AA card).

My travel wallet contains my foreign transit cards (e.g., my Clipper), my BA Amex card and my Travelex MasterCard Cash Passport, the prepaid card that I use for day-to-day spending in the US. I’ve also got a Euro Cash Passport and a Canadian Dollar Cash Passport.

My day wallet contains my Barclaycard OnePulse and loads of coffee “loyalty” cards. OnePulse is a Visa dual-interface credit card as well as an Oyster card, so it’s all I take with me during a typical day.

We also have an Orange Cash card. This is a prepaid MasterCard that is linked to my Orange account. We use this as the “house” card, so if the boys need to pop to the shops for us or buy school supplies or whatever, then they take this card.

I couldn’t log in to Barclays because I needed my debit card for my dongle in order to transfer money. So I called the Barclays Premier phone banking line and asked them to transfer £500 to my $ Cash Passport and £500 to the £ Orange Cash. This gave me cards to cover day-to-day spending and get £/$ from ATMs if necessary. We also stopped at the Post Office got $300 in cash.

Thus armed, off I went. Everything worked fine in the US, except that the US contactless POS terminals wouldn’t recognise my UK contactless cards and some unattended POS terminals (e.g., Clipper) wouldn’t take my Cash Passport. But generally speaking, no problems. Thanks prepaid cards!

When I got back, my new Barclays and John Lewis cards turned up — I never got around to filling out the form to get a replacement driving licence — and life returned to normal. My son was dispatched to the supermarket to get some supplies and he lost the Orange Cash card on the way, so we had to phone up and cancel that and get a replacement, but there you go. No money was lost.

I find it really convenient to have some prepaid cards around, and it’s not because I’m a deadbeat and can’t get credit. As I said, prepaid isn’t only about the unbanked or underbanked and I think that mobile energises prepaid, so I expect to see real growth in a variety of prepaid opportunities over the next few years.

The [2010 Federal Reserve Payments Study] found that prepaid cards represented the fastest growing payments segment from 2006 to 2009, with an annual growth rate of transactions at 21.5%. By way of comparison, the number of debit card transactions grew at 14.8% and the number of credit card transactions declined by .2% annually over the same time period.

[From PaymentsJournal – Prepaid Transaction Volume Continues to Grow, Even as the Size of the Transactions Gets Smaller]

Unfortunately, not everyone is as enthusiastic about the widespread use of prepaid cards. Various law enforcement agencies, for example, are convinced that prepaid cards contribute to money laundering.

Jim Schlegel, a senior product manager at ACI Worldwide of New York, which creates and manages electronic payment systems for banks and major retailers, said the new rules are well-intentioned, but he questioned just how big a problem money laundering through prepaid cards really is.

[From Open Channel – U.S. aims to track ‘untraceable’ prepaid cash cards]

I’m with Jim on this one. Where’s the evidence? I’m sure that the average terrorist, money launderer or drug-dealign Nazi child pornographer makes way more use of $100 bills than prepaid cards, but that’s just my opinion.

In the past year, said John Tobon, a senior U.S. Immigration and Customs Enforcement agent, the cards have become the preferred means of paying couriers who transport illicit drugs across the U.S.

[From Prepaid cards attract money launderers – BusinessWeek]

Wow, the problem must be really bad. Huge. In fact… oh, wait…

No one knows how big a role the cards play in moving the more than $20 billion in drug earnings that U.S. authorities estimate crosses from the U.S. to Mexico annually.

[From Prepaid cards attract money launderers – BusinessWeek]

Hhhmmm… this smacks of a moral panic rather than a reasoned response to a real threat. Do sophisticated international cybercriminals use prepaid cards or mobile money transfer to spirit their ill-gotten gains out of the reach of the forces of light? No, of course not. What they want is cash.

The alleged cybercriminals, based in Eastern Europe, used “money mules” to transport the stolen money overseas. Some of the mules had entered the United States on student visas or by using fake passports, according to the federal complaint. The FBI has already arrested 10 alleged money mules and 17 remain at large.

[From Trojan malware blamed for $3 million bank fraud – Sep. 30, 2010]

Fake passports? You can get in to the US using fake passports? Perhaps the authorities should focus on this sort of thing instead of annoying travellers and teenagers by making prepaid cards expensive and inconvenient.

As usual, the real losers would be, not terrorists who won’t comply anyway, but innocent Americans, or travelers, and card issuers burdened with yet another layer of record keeping and compliance procedures.

[From U.S. Government — Tracking Cash Cards?]

Quite right. Look, I don’t want international terrorists to act with impunity and there should clearly be restrictions on transferring large amounts of cash electronically, but the benefits to society of allowing prepaid cards to substitute for cash in low-value transactions are substantial. The right solution is to have a reasonable limit (say $500) for the maximum balance allowed on an “anonymous” card so as to make life easier for travellers and teenagers and anyone else who doesn’t want to carry cash for legitimate purposes while simultaneously properly enforcing legislation on larger amounts.

“It is important to recognize that public officials can sometimes take steps designed to ‘protect’ those who are disadvantaged when those steps may actually become barriers that actually restrict access to financial services,”

[From Open Channel – U.S. aims to track ‘untraceable’ prepaid cash cards]

I think this is a very important point. The social benefits of financial inclusion greatly outweigh the problems caused by the existence of prepaid cards.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


2 comments

  1. Read this and realised that I too have multiple wallets… …lots of legacy stuff in an elegant but faded black leather wallet that hardle ever comes out, and the OnePulse card I actually use every day in a handy plastic Visa wallet.

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