The prepaid market has continued to grow both in emerging markets and in the developed world. Billy Bambrough spoke to Matt Lanford of MasterCard and Guido Mangiagalli of Visa about the future of prepaid cards and why they are sometimes preferable to a traditional bank account
In the latest MasterCard study to put a value on the global worth of all branded prepaid cards the card behemoth forecast in 2010 that by 2017 the prepaid market would be worth in excess of $800bn.
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That adds up to 22% annual growth between 2010 and 2017. The prepaid card market is clearly booming and many believe that prepaid cards are a viable alternative to a traditional bank account, fulfilling all the same basic functions of the current account without the hassle of dealing with your bank.
According to MasterCard’s survey, in 2010 the US represented around three quarters of the global opportunity in prepaid with the rest of the world representing the remaining quarter. But by 2017 we see the rest of the world catching up, and the growth outside of the US accelerating and will represent around half of the opportunity by 2017.
Visa have also identified prepaid as a fast growing business. According to Visa around $15bn is spent in Europe through Visa’s prepaid cards. The company hsa around 26m prepaid cards in the market, and it processes over 200m prepaid transactions per year.
When we look closer at Europe and the prepaid opportunity there MasterCard are estimating that the market will grow by 27% to $149bn in 2017, despite Europe’s relatively well-banked status.
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By GlobalDataMatt Lanford, head of prepaid Europe at MasterCard, told RBI: "Looking specifically at Europe there is really two core markets which are really driving prepaid, Italy and the UK.
"These are the top two markets, representing around 48% of the total opportunity with the remaining six markets representing another 40%. So you’ve got 88% of the market tied up in these eight countries."
The other six countries, which are in order of growth potential, are Russia, Spain, Germany, France, Turkey and Poland.
Lanford says: "We’re not seeing any declining growth anywhere in Europe. All markets are growing in the double digit range. The UK is expected to grow 36% by 2017. Russia by 53%, France by 43%. Central Eastern Europe is the market to watch out for. Poland, Czech Republic, Hungry.
"France and Spain also have great growth potential."
The prepaid market is broken down by MasterCard into two core consumer segments, specific needs and underserved.
Lanford says: "When we look at global markets 60% of the opportunity in prepaid rests in the financial inclusion underserved area. That’s your main target audience.
"When we look at Europe as a whole that number actually flips, where 60% of the opportunity is in specific needs and 40% focus on the underserved area. This is primarily because Europe, especially Western Europe, is a highly banked area."
This is the case for both MasterCard and Visa in Europe, and in the UK and Italy most of all.
Guido Mangiagalli, VP for Prepaid and Mobile SVA, told RBI: "As the UK is a very well banked market at Visa we’ve found that its B2B prepaid which is growing much faster than the consumer market.
For Visa, Italy is a key market in Europe, representing 50% of its prepaid business on the continent.
Mangiagalli says: "Italy is the biggest and most important country in Europe for Visa prepaid today. Ideally we would like to replicate the success of Italy in other countries.
"One reason prepaid is so big in Italy is that Italians are quite risk adverse in using their credit card on the internet. As people still want to take advantage of deals and offers online then using a prepaid product is a secure way of doing this, minimising the risk."
Lanford explains how prepaid cards can come to replace a traditional bank account even in well banked countries: "One of the big categories in Europe which is expected to be a $49bn opportunity by 2017 is general use reloadable."
General use reloadable is a catch all card which, in Italy for example, becomes like a bank account. The card becomes a bank account replacement, it works just like a bank account does allowing customers to carry out direct deposit, standing orders and other bill payments.
Lanford adds: "There is still a segment of the population that distrust their banks. Banks around the world have lost credibility with some people and are still working at getting that back.
When it comes to where the prepaid card sits in relation to other means of payments both MasterCard and Visa see cash, not credit or debit cards as the main competitor to prepaid.
Lanford says: "Cash is the competitor of prepaid. I think prepaid sits well along side credit and debit but its big competitor is cash.
"MasterCard has a vision of a world beyond cash. At the moment 85% of personal consumer transactions worldwide are in cash and 15% in electronic form and we want to see this reversed, 85% electronic and 15% cash.
"We believe that prepaid will play a significant role in this transformation.
Despite prepaid often appealing to such specific consumer demographics Lanford is confident prepaid will continue to grow at a global level.
"I would say that MasterCard have a global focus on prepaid. Every market is different, even in Europe every market is different. In emerging markets, especially in countries where there is high cash usage we believe that prepaid has an important role to play.
Visa agree, arguing that prepaid will always be a popular alternative to debit or credit cards as they are accessible to everyone.
Mangiagalli says: "The main competitor of prepaid is cash. Prepaid is really about making payment easier. Today is you want to get a credit card you need to have a credit check and so on but with prepaid everyone can benefit from electronic payments without the need of providing extra information."
