Pay it forward with prepaid cards and processing
Prepaid cards are a payment format that is growing in popularity among virtually all groups of consumers these days. If you’re not familiar with how they work, prepaid cards are a plastic payment card just like a credit card—the big difference is that money is loaded onto them before making a purchase, rather than owing the money to the issuing bank when your monthly statement arrives in the mail. Consumers can make purchases with prepaid cards at POS terminals and online, as well as use them to withdraw cash at an ATM. As you’ll soon see, prepaid cards appeal to many types of shoppers for a wide variety of usage reasons.
The appeal of prepaid cards
Many consumers like the peace of mind that their spending is limited using a prepaid card—and that they won’t have any surprises at the end of the month. What’s more, many see prepaid cards as more secure since, if stolen, they won’t be linked to the individual’s bank account like a debit card is. Parents use prepaid cards to control and limit their children’s spending, such as in the case of college students who are allotted a certain amount of spending money each week or month. Some employers are moving from traditional payroll checks to issuing prepaid cards to their employees.
Bank status and prepaid card usage
You may be surprised to learn that shoppers who use prepaid cards aren’t just those who are underbanked or unbanked—that is, those who don’t regularly use traditional banks or credit unions. A Pew Charitable Trusts report found that consumers are using prepaid cards as a complement to traditional banking products, rather than as a replacement for them. Of those adults who use prepaid cards at least once a month, 59% currently have a checking account and 45% have used a credit card in the past year.
According to a 2014 report by the FDIC, here’s how the banking status of households using prepaid cards breaks down:
- 44.6% are fully banked
- 33.2% are underbanked
- 21.8% are unbanked
- 0.5% have an unknown banking status
As you can see by the above studies, by accepting prepaid cards you can tap into the wide market of consumers that take advantage of this growing payment method.
Customer types that most frequently use prepaid cards
Accepting prepaid cards can help you attract those customer types who most often prefer to pay with them. A 2013 study by the FDIC reported that 13.1 percent of unmarried female-headed families uses prepaid cards, while 10.2 percent of unmarried male-headed families uses prepaid cards. So, if you have goods and services that are particularly appealing to single parent households, for example, your business should be accepting prepaid cards to make sure you can meet the payment needs of those customer types. Of course, other family and household types also use prepaid cards, so you’ll capture an even wider audience.
Customer age and prepaid card usage
Perhaps not surprisingly, there is a direct inverse correlation between consumer age and prepaid card use. That is, the younger the customer, the more likely he or she is to use a prepaid card. According to a 2013 FDIC study:
- 12.7% of consumers age 15 to 24 use prepaid cards
- 10.9% of consumers age 25 to 34 use prepaid cards
- 10.3% of consumers age 35 to 44 use prepaid cards
- 9.1% of consumers age 45 to 54 use prepaid cards
- 6.4% of consumers age 55 to 64 use prepaid cards
- 3% of consumers age 65 or older use prepaid cards
So if your brand’s target market tends to be younger consumers, that’s all the more reason you should be accepting prepaid cards. Make sure your business is set up to accept this payment type so you don’t miss out on sales.
Household income and prepaid card usage
Research has shown that prepaid cards are generally most popular among lower income households. For example, 11.4 percent of U.S. households with an income less than $15,000 use prepaid cards (Source: FDIC). Prepaid cards are a useful payment type for these types of households that shouldn’t be overlooked by merchants looking to capture their business and loyalty. Therefore, especially if your company offers goods or services that appeal to these customer types, it’s imperative that you make sure you’re set up to accept prepaid cards.
At the same time, a 2014 study by the Federal Reserve Bank of Philadelphia found that prepaid card usage is highest in households headed by 18- to 48-year-olds with annual incomes of $50,000 or more. These “power users” are more likely to continue to use prepaid cards in the future. Therefore, consumer age seems to be a bigger contributing factor to prepaid card usage than strictly income level.
Getting started with accepting prepaid cards
Your credit card processor should be able to help guide you through the process to begin accepting prepaid cards. You’ll likely be able to run prepaid cards on the same terminal that accepts credit and debit cards. Once you are ready to accept prepaid cards, be sure that you spread the word to your customers that you now accept this payment format. Share the news on your social media pages, hang signs in your stores, and include an announcement in your customer email newsletter. You can attract new shoppers that prefer to pay using prepaid cards, and you may be pleasantly surprised that some of your current customers will spend even more with a prepaid card since they can feel more comfortable that their spending will be limited by the amount that has been preloaded on the card.
As you can see, prepaid cards are a popular payment type among many groups of consumers. Especially if you’re looking to attract more younger shoppers to your business, it’s becoming increasingly important that you’re set up to accept prepaid cards. Don’t ignore this growing payment type and lose business to your competition.