October 23, 2010

Eliminating Cash and the 'Unbanked' in the New World Order

Policymakers are embracing mobile banking as a means of providing financial access to the unbanked poor. More than a billion people worldwide lack bank accounts, but do have mobile phones, providing a dramatic opportunity to achieve greater financial inclusion.

On September 18, 2009, a panel of financial services and policy experts met in Washington to discuss alternative financial services, particularly products and services focused on the estimated 100 million underbanked Americans. A big topic of discussion was the use of
prepaid debit cards. The panel was sponsored by the New America Foundation, and a video of the event is shown above.

Marketing to the Unbanked Population

April 30, 2007

Question: To grow revenues, should our bank be reaching out to the unbanked market?

Answer: The U.S. population of unbanked — people who are not currently clients of mainstream financial institutions — is estimated to be around 10-20 million. Research has shown that a majority of the unbanked population are immigrants, low-wage earners and members of minority groups.

As an alternative to having a checking account, the unbanked often use services such as check-cashing operations, currency exchange businesses, and payday loan providers. Driving this population to mainstream financial institutions would, in fact, be in their best interest as these alternative services result in high fees and zero credit history.

That said, many people may question why the unbanked population remains unbanked. The main reason is lack of trust and understanding. Not only are there likely to be language barriers, but some feel uncomfortable using services they simply don’t understand.

As this is an educational issue above all else, it is important to help the target market ease into your financial service. Here are a few ways financial institutions have educated their unbanked communities.
  • Schedule a series of seminars about new products and services. Also, use this opportunity to interview and recruit additional individuals from minority and immigrant populations to help diversify the staff and allow others in the unbanked populations to feel more comfortable.

  • Offer payroll cards. These are stored-value cards issued by employers (commercial accounts of your bank) instead of a traditional paper paycheck. Money is deposited directly into a bank account from which the employee can withdraw cash using the card at an automated teller machine.

  • Introduce a remittance service. In the unbanked population, remittances, or money sent from an individual in one country to someone in a different country, are used often. Setting up a remittance service can allow customers to send money for a low fee (often less than what they are paying with other providers).

  • Partner with community groups to educate. A series of workshops with a third-party is valuable. Attendees can learn about budgeting, how to manage their credit and what banking services are available to them. In the end, they earn money to either pay down debt or put into savings.
Targeting the unbanked population is a great way to grow revenue but you must be patient. The majority of this market does not understand how mainstream financial institutions work. Again, this could be due to language barriers but the major issue to trust. Many immigrants are uncertain about banks due to their experience with the banking system in their home country. Investing time in educating the unbanked in your community will help them better understand you services and what you can do for them.

Policymakers Embrace Mobile Banking to Reach Unbanked Poor

Payment News
March 9, 2009

Despite regulatory challenges and the financial crisis, policymakers are embracing mobile banking as a means of providing financial access to the unbanked poor. More than a billion people worldwide lack bank accounts, but do have mobile phones, providing a dramatic opportunity to achieve greater financial inclusion, according to officials meeting near London today.
"Mobile banking services offer millions of poor people a route out of poverty by helping them to improve their incomes and pay for healthcare and education. It is vital that policymakers ensure that the needs of the poor are central as they develop regulation for this innovative and emerging sector," said Mike Foster, UK Minister for International Development.
To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking.
"Mobile banking holds great potential, and CGAP is encouraged to see that governments everywhere are being deliberate and thoughtful as they merge the domains of finance, payments, and telecom to create a framework that balances customer needs with concerns around security and prudential regulation," said Elizabeth Littlefield, CEO of CGAP, a microfinance center based at the World Bank.
Seminar participants represent countries where branchless banking is growing quickly, or is poised to do so soon: Argentina, Bangladesh, Brazil, Colombia, Egypt, India, Kenya, Maldives, Mexico, Pakistan, Peru, the Philippines, Russia, Rwanda, Sri Lanka, South Africa, Tanzania, and Zambia.

Core issues around regulating mobile banking

Mobile banking is a triangle, with customers and providers joined by local merchants that act as the crucial interface between poor people's electronic value on their phone and the cash economy in which they live. Special challenges these services present for policymakers include the following:
  • Allowing nonbank third parties, such as local merchants, to conduct "cash-in/cash-out" transactions and interact directly with customers.
  • Adapting the anti-money laundering and combating the financing of terrorism rules (AML-CFT) so they are based on real risks and are adapted to the realities of transactions conducted through remote agents.
  • Figuring out the right regulatory space for the issuance of e-money and other stored-value instruments (particularly when issued by parties other than fully licensed and supervised banks).
  • Determining how to ensure effective consumer protection (on a variety of fronts).
  • Making sure payment systems are open to all players and adequately supervised.
  • Getting the balance right in competition policies -- the right incentives for pioneers to get into the branchless banking business without allowing customer-unfriendly monopolies.
CGAP's Technology Program is supported by the Bill and Melinda Gates Foundation.

Coverage of the seminar will be available at http://technology.cgap.org.

The Alliance for Finance Inclusion is a global network of policymakers in developing countries that provides its members with the tools and resources to share, develop and implement their knowledge of evidence-based financial inclusion policies that deliver tangible results. Established in September 2008, the Alliance is managed by GTZ (German Technical Cooperation) with funding from the Bill and Melinda Gates Foundation. For further information, visit http://www.afi-global.org.

CGAP is an independent policy and research center dedicated to advancing financial access for the world's poor. It is supported by over 30 development agencies and private foundations who share a common mission to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors, and investors. More at http://www.cgap.org.

DFID, the Department for International Development: leading the British government's fight against world poverty. DFID supports long-term programmes to help eliminate the underlying causes of poverty. DFID also responds to emergencies, both natural and man-made. DFID's work aims to reduce poverty and disease and increase the number of children in school, as part of the internationally agreed UN's 'Millennium Development Goals'.

Concerning Stored Value Cards, a Letter to the Federal Reserve Chairman from the Consumers Union

Editor's Update: Since July 1, 2007, federal law gives protections under the Federal Electronic Fund Transfer Act for a payroll card established by an employer to deliver recurring wages, salary, or other employee compensation.

June 23, 2004

Chairman Alan Greenspan
Federal Reserve Board
20th & C Streets, NW
Washington, DC 20551-0001
202-452-3819 (by fax)

Re: Request for interpretation that Regulation E applies to stored value cards such as payroll cards, child support cards, unemployment payments cards, loan proceeds cards, and prepaid debit cards

Dear Chairman Greenspan,

Request for Action

Consumer, labor, community reinvestment and community development organizations ask the Federal Reserve Board to issue an interpretation of federal Regulation E to apply its consumer protections to stored value cards, particularly for payroll cards and other cards holding funds such as unemployment payments or child support payments which are critical to a household’s financial stability.

Reasons for Request

Individuals are increasingly being asked to accept stored value cards to receive payments of funds which are essential for day to day family expenses. Consumer groups and organizations who work with employees, child support recipients, and others who are being offered these cards are deeply interested in ensuring that these cards offer the same level of consumer protections as those bank debit cards which are linked to individual consumer checking accounts.

These cards, sometimes called stored value cards, are increasingly targeted to those not using traditional deposit accounts. These cards include payroll cards, prepaid cards sold to individuals for Internet and in-person card use, cards used to deliver income tax refund monies or income tax refund loan proceeds, child-support cards, and cards used to draw unemployment payments.

Payroll cards, one form of stored value cards, are increasingly offered to low- and moderate-wage workers. These products are being marketed to workers as serving the same functions as a bank account ...

Payroll cards are being actively marketed to employers as a way to reduce the costs of handling paper checks for employers and as a way to serve the needs of the millions of U.S. households who do not currently have bank accounts. A study issued by the Office of Comptroller of the Currency reported that 10% of unbanked households, representing 1 million families, were using payroll cards at the end of 2002 [Payroll Cards: An Innovative Product for Reaching the Unbanked and Underbanked, OCC Community Development, October 2003].

Usage has grown dramatically since then. In May 2004, the Associated Press reported that 1,000 companies were using payroll cards in the U.S., distributing $11 billion annually in payroll and $4 billion annually in employee incentive or commission payments [New Payroll Cards Sub for Paychecks, Associated Press Online, May 31, 2004]. In that same story, a VISA spokesperson claimed “triple digit growth rates for this category.” AP cites the Mercator Advisory Group for an estimate that the potential U.S. market for payroll cards for unbanked, temporary, and remote location workers is $109.8 billion ...

Marketplace facts

Stored value cards, including payroll cards and prepaid debit cards, are being marketed to consumers as account substitutes.

Stored value card marketing emphasizes account-style features. At an October 2003 presentation on non-EBT government benefits payment cards such as cards to distribution state-collected private child support, one provider told the NACHA Electronic Benefits Services Council that custodial parents often use these cards as savings devices, carrying portions of their child support payments over from month to month, perhaps in anticipation of larger than usual periodic expenses such as holidays or back-to-school spending. Payroll cards also are touted as a way not to spend the whole paycheck at once, an account-substitute feature. Indeed, web descriptions by payroll card issuers frequently use terms such as “your account” and “your money” in addressing the cardholders. Here are a few examples:


“The AccessCard only lets you get money you already earned and is in your account.”

“The money is already in their account!” referring to the individual employees.

www.paychex.com/products/accesscard.html (as of September 26, 2003, still posted May 26, 2004).


“Direct to cash features include…” “Account cannot be overdrawn.”

Subsubpages =2058 subpage=1508 master = 1 (as posted January 6, 2004, still posted May 26, 2004).

Money Network:

“You can initiate your own money transfer; use free TransChecks, which work like a traditional cashier’s check or request information about your balance and deposits via ATM or telephone.”


“Access your Moneynetwork payroll card account by phone.”

www.moneynetwork.com (as posted January 6, 2004, still posted May 26, 2004).

Advantage Financial Systems:

“Paychecks and/or Federal Benefits are electronically deposited into your account.”


“Your account is FDIC insured up to $100,000 for your piece [sic] of mind.”

www.advantagefinancialsystems.com/electronicpayrollcard.html (as posted May 26, 2004).

Serving Unbanked Consumers in the Transit Industry with Prepaid Cards

This article is the second in a series looking at approaches to serve the unbanked consumers in the transit industry. The third article in the series will look at how network-branded prepaid cards could be used to serve the unbanked transit customer.

Smart Card Alliance
June 2008

Prior to the advent of smart card-based AFC systems, serving unbanked transit riders was simple: riders paid cash at a fare box or used cash to buy fare media at ticket vending machines and retail outlets. Ownership of a bank account was irrelevant as to whether or not a transit rider could pay a fare or otherwise have full access to the public transit system, since nearly every transit fare media sales channel accepted cash. (Exceptions included ticket-by-mail programs and, more recently, ticket vending machines that accept credit/debit cards only.)

Over the past 10 years, the introduction of smart card-based AFC systems such as the Washington, D.C. area’s SmarTrip, Chicago’s Chicago Card, and the San Francisco Bay Area’s TransLink, have made ownership of a bank account relevant to transit access and availability.

In many cases, the smart card programs offer a feature that allows the transit rider to link the transit smart card to a credit card or checking account that automatically replenishes fare value when the card's balance falls below a certain value, on the first of the month, or when a pass expires.

The Bay Area’s transit agencies have identified this feature, known as autoload, as the preferred method for vending value to transit riders. Autoload maximizes the convenience of the smart card, minimizes the cost of vending fare value, and creates a predictable revenue stream for the agencies. In the Bay Area, the autoload feature is proving to be popular among the initial group of TransLink cardholders. As of April 2008, about 50% of the approximately 20,000 cardholders who used their cards within the past year were registered for autoload. However, neither TransLink’s autoload feature nor similar features offered by other programs are available unless a transit rider has a bank account or credit card.

Pilot programs underway in New York City and Salt Lake City further emphasize the importance of being banked. These programs accept bank-issued credit and debit cards for fare payment. Like closed-system smart card programs, these programs are intended to maximize customer convenience and lower the cost of vending and collecting fare value.

Establishing approaches for offering unbanked transit riders automated replenishment of fare value is in the best interests of both transit riders and the transit agencies. The ability of smart card programs to offer customer-friendly and cost-effective approaches to serving unbanked transit riders will partially determine whether such programs succeed. If the programs are unsuccessful in reaching the unbanked rider market segment, transit agencies will find it difficult to eliminate legacy fare collection systems. And if the cost of reaching this market segment is too high, transit agencies will not be able to reap the full benefits of new smart card-based AFC systems.

The payments industry has been fond of train metaphors for years. We often speak of the payments ‘rails’ provided by networks like Visa and MasterCard. And so, perhaps it is only appropriate that Isis, the mobile payments joint venture of three major wireless carriers plus Discover, announced on April 4, 2011 that its first market (in early- to mid-2012) will be Salt Lake City and that an important component of that launch would be a deal to enable the Utah Transit Authority (UTA) for mobile fare payments.

In fact, the public transit industry has become a pretty interesting and important venue for payments industry innovation. Our firm, Morris Advisors, has spent a fare (fair, sorry couldn’t resist) amount of time working with various stakeholders in public transit relating to two important transitions:

  • Transition #1: From closed-loop proprietary transit-only smart card systems to open fare payments using contactless bank cards as the fare media, and
  • Transition #2: From card-based fare payment systems to mobile payments.

Historically, transit fare payments were predominantly cash based. The patron would purchase a little metal coin known as a ‘token’ and that would be presented as fare for the train or bus ride. The problem with these systems is that a large amount of fare revenue never made it to the transit agency’s accounts due to patron fraud and employee theft. As a result, transit agencies began to implement more secure automated fare collections systems whereby patrons’ prepaid fare or transit passes are stored on smart cards dispensed by ticket vending machines and agents. Contactless readers were then installed on fare gates and buses along with sophisticated back office fare accounting systems to authorize fare payment and manage the complicated fare products and rules.

Nearly every major U.S. transit system invested tens of millions of dollars to upgrade to smart card systems with a supporting business case based on the greater efficiency of revenue collection. But now, amazingly enough, the same group of transit agencies have become enamored with a new approach (see Transition #1 above).

Wouldn’t every other merchant category love to have 100% of payments being made with a proprietary prepaid payment product (see Starbucks)? But a series of events over the last several years (long story) has led many transit agencies to believe that they would be able to lower their costs (really?) and provide a more convenient fare payment system for patrons if those contactless readers on fare gates and buses could be used to accept contactless bank cards as fare media.

With the history lesson complete, this leads us back to Isis. It just so happens that the first commercial deployment of this ‘open fare payment’ approach using contactless bank cards was at the Utah Transit Authority in Salt Lake City. Today only a very small percentage (single digits) of UTA total ‘taps’ are currently from bank cards, but the account-based systems required to authorize bank card payments at fare gates have been installed by the UTA and received a good test drive. And certainly the UTA will welcome mobile payments as a means to further enhance their value proposition for transit patrons.

What is more interesting is how transit is beneficial for Isis… Let us count the ways:

  1. Ideal use case for the speed and convenience of ‘tap and go’ mobile payments.
  2. Contactless readers already installed at every point of sale.
  3. Core customer base with two transactions every weekday.
  4. Opportunities for retail spend at merchants along transit routes.
  5. Location-based marketing opportunities powered by both GPS and transit system data.
  6. And on, and on…

Truly, this is a great strategic fit for Isis… a rather obvious target merchant category for the new mobile commerce network. It will be interesting to see how well Isis can ‘tap’ (sorry again) into the opportunity presented by public transit, not just for payments but also for customer self-service and mobile marketing.

Another little wrinkle for Isis to consider is that a generous percentage of public transit patrons are unbanked or underbanked (perhaps not in Salt Lake City, but in many other metros). For this reason, many of the transit agencies moving to open fare payments are also considering issuance of a contactless general purpose reloadable prepaid debit card as a part of their program. Isis has publicly stated that prepaid cards are among the payment types that can be stored in an Isis ‘mobile wallet’ and this certainly will be a requirement for public transit, although it is uncertain how Isis will prioritize this underserved market.

Reaching Out with Smart Cards on Public Transit Systems Worldwide

By Smart Card Alliance Transportation Council
September 2008

As public transport systems worldwide continue a steady move toward automated fare collection systems, smart cards can help to reach those left-out by the changes.

Transit agencies worldwide have been implementing smart card-based automated fare collection (AFC) systems to reduce operating costs, facilitate boarding, and make public transit more convenient to use. To date, fare collection systems have used a stored value model with a single-purpose transit payment card or device.

Increasingly, however, transit agencies are recognizing the benefits of coupling transit payment with a bank account payment device, such as a credit or debit card. Linking AFC systems to bank products has many benefits for the agency, but raises concerns that patrons who lack bank accounts will be disadvantaged. Agencies have always supported a variety of payment forms to enable the “unbanked” to ride as easily as any other user. Virtually all agencies accept cash, something unlikely to ever change.

While there may be other methods employed by agencies to serve their unbanked customers, there are two specific approaches to extending AFC payment media to such consumers who constitute a significant portion of transit riders. One is to offer a re-loadable prepaid card, topped up at specific load stations. The other is the use of contactless chips on existing prepaid cards. With these approaches, there is scope for technology providers to help supply transit agencies with the necessary tools to service unbanked customers and continue their implementation of smart card-based AFC systems.

Typically, agencies make sure fare media is widely available, because providing easy access to the transit system is a major objective. Public officials would look askance at any system that was not as available to the poor or underprivileged as it was to other groups, especially if this were due to a requirement that riders have credit cards or traditional bank accounts with a financial institution.

The Power of Plastic: How Banks Are Using Technology to Reach the Unbanked

In 2003, for the first time, electronic payments surpassed cash and checks as consumers’ preferred payment method for in-store purchases thus eliminating the cost and effort associated with having to manage currency.

By John D. Hawke, Jr., U.S. Department of Treasury, Comptroller of the Currency
Fall 2004 Community Affairs Newsletter

Through its Community Affairs function, the Federal Reserve Bank of New York provides financial institutions, not-for-profit organizations and others with information and technical assistance on issues related to community and economic development, access to capital and credit for low- and moderate-income communities and the Community Reinvestment Act.
Technology is rapidly transforming the banking industry — and expanding its ability to reach the unbanked.

Employers are turning increasingly to electronic payroll cards as a cost-effective way to reduce the burden of writing and processing checks. Consumers are using their payroll cards and other versions of prepaid debit cards — also known as stored value cards — as a substitute for cash and checking accounts.

Monitoring this trend, the American Bankers Association reported last December that in 2003, for the first time, electronic payments surpassed cash and checks as consumers’ preferred payment method for in-store purchases — an “evolution of payment behavior,” the ABA noted, “driven by the increasing popularity of debit cards.”

Debit cards accounted for nearly a third (31 percent) of in-store purchases in 2003, up from 21 percent only four years ago. Reliance on credit cards held steady during that time, at about 21 percent. Cash and checks, which accounted for 57 percent of in-store purchases in 1999, dropped to about 47 percent last year.

Evolution or revolution?

These data confirm that since the mid-1990s, when I became involved with the use of technology to reach the unbanked, there has indeed been a dramatic evolution in this field — really almost a revolution.

Consider, for example, the Navy Cash system, a smart card application allowing U.S. Navy surface ships to go cashless. Individual sailors and Marines at sea use their Navy Cash debit cards for everything from buying soft drinks at shipboard vending machines to withdrawing funds in foreign currency from ATMs at ports of call. The program is proving to be a highly efficient and economical way for individuals to move part of their pay onto prepaid debit cards.

With nearly 10 million unbanked households in the United States, prepaid debit products are increasingly being used by employers to remit wages electronically to their employees. Six years ago, the Treasury Department introduced the Electronic Transfer Account (ETA) as a model product to enable all federal government employees, retirees, and beneficiaries to receive their checks via direct deposit.

Many banks have since adapted the ETA concept, developing their own fully electronic, low-cost accounts to serve the unbanked market. They’ve found that these products have wide appeal — not only for unbanked retirees but also for college students, people who are new to the workforce, people who change jobs frequently, and immigrants and others who haven’t had conventional banking relationships or aren’t comfortable handling the costs and logistics of a checking account.

So what we’re seeing now is the convergence of two powerful financial forces. It’s newsworthy, for example, when many of the nation’s most influential corporations begin shifting to payroll cards, as they have been doing in recent months. And it is newsworthy when consumers decide, in effect, that a plastic card in their wallet is about all the bank they need — at least for now.

New banking relationships

Payroll cards can eliminate the need to stand in line and pay high fees at a check-cashing store. Functioning as “checkless bank accounts,” prepaid debit cards offer a convenient and generally safe way to store funds, pay for purchases at stores and restaurants, access ATMs, and pay bills.

Banks have also recognized their value as low-cost, high-efficiency mechanisms for immigrants to send money home. Remittance services are emerging as one of the many new ways in which banks can use debit cards to build relationships with previously unbanked customers. According to the Inter-American Development Bank, U.S. consumers sent more than $30 billion in 2002 to their families and friends in Latin America, with about one-third of the total flowing to Mexico. Banks can provide remittance services at lower cost and with greater security than other providers.

But the power of plastic goes beyond merely making connections with new customers. For example, innovative banks are also creating links between payroll cards, tax preparation services, and the earned income tax credit (EITC) — rightly described as the federal government’s most powerful anti-poverty weapon — to help move tax refunds directly into dedicated savings accounts that can aid lower-income Americans in building wealth. Similarly, banks working with nonprofit community development organizations and various funding sources are helping hard-working families to leverage their own assets through matched-deposit Individual Development Accounts, a potentially powerful wealth-building tool (see IDAs: Savings Incentives to Build Wealth”).

Consumer education is essential to the overall success of these new banking innovations and initiatives. Financial institutions have a clear responsibility to ensure that debit cardholders understand the fees and risks involved, even though those fees and risks generally may be lower than with, say, high-balance credit cards, and certainly lower than when relying on check-cashing and predatory payday-loan operations.

But there are also opportunities to take consumer education to another level. For instance, an initiative to help lower-income renters move to automated electronic rent payments has been coupled with an incentive program through which they can obtain, at low cost, a brand-new home computer. For families with school-age children, the motivation to acquire a computer is powerful — and those children can help their parents become computer-literate, an almost absolute necessity these days whether one is looking for work or managing money. The common sense underlying this approach (every adult of a certain age has been humbled by watching a child at a computer) is breathtaking — and very welcome.

Opportunities and obligations

Computer education goes hand in hand with financial literacy education. As more people, many of them lower-income, turn to the convenience of plastic, there are both opportunities and obligations for financial institutions to work with consumers — directly or through community-based organizations — to ensure that previously unbanked customers understand debit-card finance and that they are offered access to savings accounts and similar wealth-building products.

Banks reaching out to low- and moderate-income consumers with low-cost debit accounts, remittance services, EITC links, individual development accounts, and similar products and services may receive Community Reinvestment Act (CRA) service test credit for such initiatives.

In 2003, for the first time, electronic payments surpassed cash and checks as consumers’ preferred payment method for in-store purchases ...

The United States is, as we all know, an increasingly diverse nation. Many come from countries where banks may not have been trusted allies; others, whether immigrant or native-born, may have never had the chance to do more than go from paycheck to paycheck, or from one month’s assistance payment to the next. A bank that doesn’t write-off this market segment can help create many kinds of wealth, including some that aren’t measured in dollars alone. That’s the true power — and promise — of plastic.

Banking Without Borders: How Citibank’s New Services Help Consumers in the U.S. and Mexico

By Mark Rodgers, Vice President, Citigroup
Fall 2004 Community Affairs Newsletter

When Banamex, Mexico’s leading bank, merged into the Citigroup family of financial companies in 2001, we began looking for ways to better serve customers on both sides of the border. Citigroup’s acquisition in 2002 of Golden State Bancorp, gave us an expanded branch network and a greater ability to reach Hispanic customers in the western U.S.

We knew that many recent immigrants had banking needs but lacked even the most basic banking relationships. Chief among their needs were inexpensive and user-friendly remittance services to enable them to send funds to families or friends back home, and basic bank accounts offering security and convenience.

In April 2003, we introduced Citibank Global Transfers, which offers U.S. bank customers affordable, convenient, real-time money transfers domestically or to Mexico for a flat $5 fee. With a money remittance service in place, we then turned to offering products to support sending funds from the U.S. and receiving them in Mexico. Our solutions are the Citibank Access Account and the Banamex Tricolor Card, two new products that we rolled out in the fall of 2003...

Reduced Churn for Stored Value Cards

By Rivka Gewirtz Little
September 15, 2009

The prepaid card market is experiencing solid growth despite a tough economy, but competition is fierce and it can be difficult to retain customers for stored value cards. So providers and retailers are combining an ecosystem of value-added features and creative business models to help retain customers and fuel the market in the long-term.

The overall prepaid stored value market — including both open and closed-loop cards — will reach $421 billion by 2010, according to the Mercator Advisory Group. While some segments of the market are expected to remain flat, others are expected to see inflated growth despite the economy.

Some segments of the market are, in fact, expected to grow because of the recession, according to the Center for Financial Services Innovation. Government cards, general purpose cards, consumer incentive cards and payroll cards are all expected to experience healthy growth in the coming year, with the government segment leading the way. Healthcare and education related prepaid cards are also expected to do well.

Card providers are increasingly creating card programs that capitalize on the markets that are thriving in a tough economy. With the government market segment leading the way, smart companies are tailoring programs for that sector. The bottom line is if card providers can spin programs that fit specific government needs, they will retain and grow their customer base.

TSYS (Total Systems Services, Inc.), an electronic payment services company with a strong prepaid division, did exactly that when the company created a private label card program that enabled the government to help consumers who had analog televisions make the transition once all T.V. broadcasting went digital last winter.

The change in broadcasting required that all consumers either have digital televisions or converter boxes that enabled digital signal to be received on an analog box. The National Telecommunications and Information Administration (NTIA) knew it had to reach out those users who didn’t have the financial means to make the transition. So it set out to provide subsidized converter boxes. The catch was getting out millions of dollars in vouchers to consumers without opening the program to fraud. The NTIA figured private label cards were the best bet.

Private label cards use networks from major companies like MasterCard and Visa, but they only display the name of the issuing retailer (or group of retailers) – and sometimes within that, even just the specific product being promoted. Ultimately, the card programs can create a “neighborhood” of participating companies that all use their POS technology to accept the payment method.

For the NTIA, TSYS developed private label cards that could be used at retailers selling converter boxes.
“They knew that 70 million households had TVs that couldn’t get digital signal and they wanted to create a subsidy to the public for televisions … offering a converter box that would take the digital signal and convert it back to analog so you wouldn’t have to go out and buy a new television,” explained Kathy Heitmueller, director of sales for TSYS, at the recent Prepaid Press Expo 2009 in Las Vegas. “They offered $40 for a box and most of those boxes ran between $50 and $60.”
TSYS issued red plastic cards with $40 loaded on them. The cards were sent out in a mailer that also included information on where consumers could buy the converter box. The program included 35,000 participating retailers, ranging from major electronics box stores like Best Buy to smaller shops. It was TSYS’ job to create the “neighborhood” of stores that could accept the payments.
“You could take your card to Best Buy to purchase your converter box. You hand them the card, they would scan the box, and we would receive the UPC (universal product code) and validate it in real time,” Heitmueller said, adding that providing real-time service meant retailers had to do “some development” in their payment systems. “The government was not going to pay the retailer back unless they could confirm it was the box (that was sold).”
The program went off without a hitch.
“We issued over 64 million cards with no fraud,” Heitmueller said ...
U.S. Senate Hearing on "Bringing More Unbanked Americans Into the Financial Mainstream" (May 2002)
Banking the Unbanked Using Prepaid Platforms and Mobile Telephones in the U.S.
Mobile banking: A boon for unbanked
Federal Reserve Board: Stored Value Cards as a Method of Electronic Payment for Unbanked Consumers
Payments: Automation is Washing Money Orders Away
Payday? Reload your plastic payroll card
FDIC: "Tapping the Unbanked Market" Symposium
U.S. Comptroller of the Currency Advisory Letter on Payroll Card Systems
Findings from the FDIC Survey of Bank Efforts to Serve the Unbanked and Underbanked
Banking on the Unbanked
Smart Card Alliance: Public Transit Cards for the Unbanked Consumer
Attitudes & Habits of the Unbanked: Key Learnings to Better Understand the Unbanked Population in America
NovoPayment Predicts $200B Latin American Prepaid Market
Reaching Underbanked Latinos
Channeling People Into the Economic Mainstream: Financial Access in Puerto Rico
Banking the Unbanked: The Wells Fargo Approach
The lowdown on Wal-Mart's debit card
Tax Refund Services Can Attract the Unbanked
The Cost Effectiveness of Stored-Value Products for Unbanked Consumers
Stored Value Cards: Challenges and Opportunities for Reaching Emerging Markets
Reaching the unbanked: A highlight at ATMIA's ''ATMs in Africa 2' Conference
Banking the Unbanked: Going Mobile in Africa
Inviting the unbanked into the credit system
Market Trends: Opportunities In the "Unbanked" Consumer Market
Electronic Banking: Reaching the Unbanked and Underbanked with Self-Service Technology
Payroll Cards An Innovative Product for Reaching the Unbanked
A Guide to Building Products and Strategies for Underbanked Markets
U.S. Treasury Department: Regional Conferences on Reaching the Unbanked
U.S. Treasury Department: Midwest Regional Conference on Reaching Unbanked People
Strategies for Banking the Unbanked: A Global Market Opportunity
Using Network-Branded Prepaid Cards to Support the Unbanked Transit Customer
The Unbanked: Market and Opportunities for Global Remittance
2004 Press Release: Payment Data Systems Files Patent on Industry's First Debit Card Bill Payment Technology
Payment Data Systems, Inc. Forms Strategic Partnership to Reach 40 Million Unbanked Customers - Payment Data Systems, Inc. an integrated electronic payments solutions provider, announced today that it has filed for patent protection from the U.S. Patent Office for the technology that will enable bill payment using a debit card. In expectation of this patent, Payment Data Systems has entered into a strategic relationship with Secure Cash Network, Inc. to provide the electronic payment industry's first bill payment debit card. The debit card technology for which Payment Data Systems has filed for patent protection, allows a cardholder to use their stored-value Secure Cash Network debit or ATM card to pay local, national or international bills with the card from their electronic balance. Because it does not require linkage to a traditional checking or savings account, this new debit technology is unique in that it allows for use by 'unbanked' consumers.
Convenient, low-cost, and secure. Flexipay reloadable payroll debit cards are the next evolution in pay delivery for employers who want to reduce costs and improve productivity. Part-time and temporary employees, as well as employees who don’t use a checking account, will appreciate the convenience and money-management features Flexipay offers.
3rd Prepaid Cards Conference (2009)
Tap into the Global Unbanked Market of Nearly 2 Billion People
The Brookings Institution - Bringing Unbanked Households Into the Banking System
Reaching the Unbanked with Stored Value Cards
The Promise of Stored Value

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