erchants have the opportunity to build on prepaid card services offerings to bridge a gap for the "unbanked," a large number of people in the United States who have no access to credit and debit cards or checking accounts. As an ISO/MLS, you can generate new and recurring revenue opportunities for both you and your merchants by helping them become the financial storefront for repeat customers.

According to data from the Federal Reserve Board, there are at least 10 million households that fall into the category of the unbanked. Currently, at least 280 million transactions totaling $168 billion or more flow annually through alternative financial services such as pawn shops, rent-to-own stores, check cashing outlets and other channels, according to a report issued last year by the Fannie Mae Foundation.

Many households are low-income families who cannot justify the relatively high costs associated with maintaining regular checking accounts. And many are U.S. immigrants, a population growing at the rate of 1 million people a year.

Also, because of previous credit problems, a large population of people who have basic checking or savings accounts cannot obtain credit card products. That effectively prevents them from shopping online and makes it difficult to obtain basic services such as renting a car or booking a hotel.

Unbanked consumers don't have access to the financial services that many Americans rely on, and the alternative financial services available to them generally come with large fees. Yet these consumers could easily cut their costs by moving away from the use of alternative financial services and instead relying on prepaid, stored value credit and debit card products that give them ready access to ATMs and point-of-sale transactions at little or no cost.

The volume and frequency of transactions involved should interest merchants. The immigrant population in the United States in 2002 accounted for approximately $35 billion in "remittances," or payments sent back to family and friends in their home countries.

The total remittance flow from the United States to Latin America and the Caribbean was estimated to be $30 billion in 2003, making it by far the largest single remittance channel in the world, according to a report released in late 2003 from the Pew Hispanic Center and the Multilateral Investment Fund of the Inter-American Development Bank.

Converting a portion of this market to stored-value products represents a tremendous opportunity for you and your merchant customers to develop ongoing financial relationships with unbanked consumers. It also provides a variety of revenue opportunities, including fees for initial loading of stored-value cards and, in some cases, the opportunity to earn residual fees from monthly service charges, even ATM fees and point-of-sale purchases.

Some six million immigrants from Latin America living in the United States now send money to their families back home on a regular basis and primarily through wire transfer, according to the Pew Hispanic Center report. Two-thirds of Latino remittance senders dispatch money at least once a month, indicating strong potential repeat business for merchants who offer alternative services. More than half of the surveyed remitters dispatch between $100 and $300 at a time.

Although significant pressure from governments has caused remittance fees to drop, a typical overseas money transfer from the United States can still cost $10 - $25 or more on the front end.

But in addition to transmittal fees, fees charged for receiving money, commissions and rate variations in the currency exchange process can have an impact on these transactions. Senator Charles E. Schumer, D-N.Y., said last year that total remittance fees might account for 15 - 20% and even up to 30% of the original amount of the money sent.

Merchants can offer a powerful, lower-cost alternative to their customers with prepaid credit and debit card products. Not only do these cards provide safe and secure storage of funds, but they also open up a wide range of relatively low cost financial services, such as POS, online and phone payments, etc. Some products award merchants with 3 - 5% of fees generated by use of the cards.

Some programs now enable the issuing of dual cards for each account so a member of the immigrant community can send one overseas, and the recipient can either use the prepaid credit card for purchases or use the duplicate debit card to withdraw funds. Although these cards aren't free, any fees involved compare favorably to fees charged to maintain a basic checking account such as monthly fees, ATM surcharges, overdraft fees, price of checks, etc., which can average $30 or more a month.

Merchants can promote these products to their retail customers as lower-cost alternatives that provide greater flexibility by bundling multiple types of services into one vehicle.

BanX, Inc.'s BanXcard, for example, combines the functions of a debit card, a prepaid telephone card, and an ATM card. BanX says cardholders will likely return time and time again to reload and use their cards to purchase merchandise.

BanXcards provide consumers with a PIN-based card that merchants activate and load in the same store where the customer purchased the card. The standard activation package includes two cards so that the buyer can send one overseas for easy, convenient and lower cost money transfers to family back home.

ITC Financial Services, LLC's SnapPay solution offers premium debit MasterCard and premium prepaid Visa card products with a variety of enhanced features. The company offers the ability to set up two accounts and transfer funds from one account to another.

Additionally, SnapPay allows direct deposits from multiple sources, so cardholders can have their paychecks automatically stored to their cards from more than one employer. In some cases, SnapPay also provides overdraft services for relatively modest fees that are much less expensive than the controversial payday loan programs.

A vast number of hard-working consumers are isolated from the banking system. These programs serve as an example of the new possibilities that value-added applications bring to the point of sale. By serving as the new financial storefront, merchants can increase return traffic and establish multiple revenue streams with each customer relationship.

Patricia L. (Patty) Colby is the Manager of VeriFone, Inc.'s North America Value-add Program. She manages the company's strategy regarding all Value-add Program initiatives. She also coordinates the acquisition and execution of new value-add relationships and launch programs.
Colby has over 14 years' experience working with electronic payment systems and 19 years' experience in the issuing and acquiring industry. E-mail her at patty_colby@verifone.com .