The ubiquity of mobile phones combined with the increasing relevance of prepaid cards as alternative bank accounts makes for a potent value proposition for both underbanked consumers and prepaid card providers, according to a Center for Financial Services Innovation webinar.
In The Mobile Opportunity: Extending Financial Services to Underbanked Consumers, CFSI Analyst Kate Marshall outlined that value proposition. The vast majority of underbanked consumers with minimal access to bank accounts and other traditional financial services use mobile phones, she said.
In addition, the upward trend in general purpose reloadable (GPR) prepaid card usage, and the resulting familiarity of that product among the financially underserved, lead Marshall to conclude that GPR cards represent an "important piece" in the mobile payment equation.
Marshall cited a 2009 Federal Deposit Insurance Corp. study that found only 12 percent of consumers in unbanked households and 16 percent of people in underbanked households used GPR cards. Since the underbanked are typically cash users, new revenue sources can be tapped by transitioning them to electronic payments, she said.
"So an important role in mobile financial services for underbanked consumers in the U.S. basically means increased access to these accounts," Marshall noted. "And since prepaid debit accounts are already available through the Internet, through a handful of companies, we think the transition to offering these accounts directly through the mobile channel will be quick."
Marshall advised financial services companies to include prepaid accounts as an important component of mobile wallet strategies.
A companion research report to the webinar, co-written by CFSI and payment consultancy Celent LLC and entitled Reaching Underbanked Consumers through Mobile Services, said mobile payment accounts in emerging markets have evolved in a similar fashion to GPR card accounts in the United States. According to the report, both types of accounts are easy to obtain, require limited personal information to open and employ upfront, usage-based pricing structures.
"The accounts use a prepaid model of funding, so consumers can spend or use only as much money as is in the account," the report said. "And both models rely on a distribution network made up of familiar merchants with whom consumers transact for other goods and services."
One opportunity emerging stateside involves New York-based prepaid program manager Plastyc Inc., which enables prepaid phone users to add mobile airtime to phones via GPR cards, the report said.
Another prepaid card trend is developing abroad, the report said. Mobile telecommunication providers Telefonica O2 UK and Orange UK now offer GPR cards with prepaid mobile phone programs to increase revenue and customer loyalty. "So we see a lot of potential for similar products here in the U.S.," Marshall said.
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