Help your cardholders harness the power of a prepaid card program
Long considered a mainstay for unbanked consumers rather than an attractive offering for those with an existing banking relationship, prepaid cards are often overlooked by financial institutions. But prepaid cards play an important role in the finances of banked and unbanked consumers and businesses alike.
While unbanked households are indeed the biggest users of prepaid cards, at 27.1 percent, fully banked households are also using them. In fact, the number of consumers using prepaid cards in addition to their checking accounts grew by 50 percent between 2012 and 2014. Overall, prepaid card transactions increased from $20 billion in 2003, to over $300 billion in 2015.
Research supports the idea that prepaid credit and debit cards are an effective tool for both enhancing current banking relationships and driving new account openings. In a 2015 FDIC survey, 47 percent of unbanked households that used prepaid cards reported that they are likely to open a bank account within a year. And businesses that have banking relationships are using prepaid cards in increasingly creative ways to streamline operations, cut costs, and support promotional efforts
A prepaid card looks and acts like debit and credit cards, but offer many attractive benefits their traditional counterparts do not. Institutions that leverage the most appealing features of prepaid cards can attract new cardholders and further strengthen current relationships. Let’s take a closer look.
One of the benefits of prepaid cards is that they present a more secure way to pay than cash. And unlike debit and credit cards, they don’t link to personal data that could be vulnerable to thieves. This is especially appealing to consumers in scenarios where they may feel more vulnerable to theft, such as when traveling, or making purchases online. Additionally, new regulations (see below) are increasing consumer protection services like deposit insurance and zero-liability in case of a stolen or lost card.
Businesses looking for a more secure alternative to petty cash funds and corporate credit cards are finding success with prepaid cards. Companies can use the cards to manage and track employee expense accounts, petty cash, and even employee incentive programs. Prepaid card programs like Vantiv Prepaid offer many features that help streamline these tasks and more.
When prepaid cards first came on the scene, consumers were drawn to them as an alternative to traditional banking. But since the cards lacked the consumer protections that traditional credit and debit cards offered, some users ended up paying fees for everything from card activation to withdrawals, reloads, and even customer service calls. This is changing with new prepaid card regulations from the Consumer Financial Protection Bureau (CFPB) that will take effect on October 1, 2017. The regulations make the cards more consumer friendly by including requirements for disclosing fees upfront, offering better protections against fraud and loss, eliminating overdraft fees, and placing limits on lines of credit.
Even before the CFPB regulations, prepaid cards were a more cost-effective solution for many consumer and business situations. Take the example of Lube-Tech, a leader in advanced lubrication and energy solutions. The company was struggling with the inability to track and report sales incentives, and paying for it in stop payments on uncashed checks and other related expenses. After consulting with Vantiv, Lube-Tech replaced the checks with prepaid, company-branded, reloadable cards. The cards are flexible enough to be used in a wide range of Lube-Tech’s incentive programs. And by replacing checks with prepaid cards, the company has cut their costs in half.
Since funds are limited, prepaid cards have become a popular way for both consumers and businesses to track expenses. Funds cannot be overdrawn on prepaid cards, which help consumers stick to a budget. And businesses can use prepaid cards to track miscellaneous expenditures and manage employees’ per diem expenses.
One unique use case for using prepaid cards to budget expenses comes from the Sephardic Food Fund, a nonprofit organization that assists individuals and families in distress. The organization enlisted Vantiv to help them design a prepaid card program that would allow them to issue one-time use cards and reloadable cards with daily spending limits. With Vantiv Prepaid, Sephardic Food Fun can limit card usage to specific merchant categories, ensuring ensure clients are using the cards in the way the organization intended. Vantiv Prepaid also allows the organization to monitor card spending and easily reload cards, which reduces administrative time and costs and increases efficiencies.
Easier rewards and incentives
Because they are easier to distribute than cash and more versatile than merchandise, prepaid cards are a natural fit for many types of customer and employee incentive and reward programs. Recipients like the cards because they have complete control over their purchasing decision without the restrictions of an affiliated gift card. Businesses like the cards because they can be personalized to the occasion for the reward and customized to promote brand awareness.
Prepaid card incentives are effective in both business to consumer and business to business settings. One example is Sunex Tools, a manufacturer of innovative automotive tools that serves both the automotive aftermarkets and the industrial and commercial sectors. Originally selling through wholesalers and resellers, Sunex Tools wanted to build brand engagement directly with their end users– but they had to figure out who they were first.
After consulting with Vantiv, Sunex Tools implemented a mail-in rebate program offering end users a prepaid card in exchange for remitting their contact information. The strategy was effective– the company was able to triple the amount of end users in their rebate program, giving them a robust list of contacts for direct marketing efforts. The promotion also paid off to their bottom line; Sunex Tools reported 50 percent higher unit sales and approximately $334,000 sales growth following the rebate program.
Prepaid cards present a unique opportunity for financial institutions to increase cardholder loyalty among current consumers and businesses, and reach out to a previously untapped pool of users. Whether you are appealing to new cardholders or small businesses, be sure to keep prepaid card solutions top of mind.