Big Card Issuers Look to Prepaid for New Market Growth

To get the most out of U.S. consumers’ propensity to use plastic to pay for everyday purchases, MasterCard (NYSE: MA) and Visa (NYSE: V) are strategically targeting the prepaid card market as a major area of growth, according to an article published Monday on TheStreet.com.

A current Visa advertising campaign is already encouraging Americans to use debit cards instead of cash. But if the card payments network and its main rival MasterCard have their way, prepaid cards will support growth in the U.S. and globally.

"The big vision is that ... people talk about prepaid in the same way they talk about credit and debit," Elizabeth Buse, Visa's global head of product, told TheStreet.com. "If we're talking a few years from now, my vision would be we're not talking about prepaid as an innovation, we're talking about prepaid as the third mainstream consumer product."

Although prepaid cards do not have the flexibility of debit and credit cards, the companies are looking to push prepaid products into new markets. Traditionally, prepaid cards have been in the form of gift cards that expire when the prepaid amount is exhausted. But both Visa and MasterCard have been targeting the employer payroll market and government dispersal programs for growth. The networks envision employers paying employees with prepaid cards rather than check or direct deposit.

Payroll cards have been the “Holy Grail” of the prepaid industry for some time. Last July, smaller rival Discover announced a partnership with payment processor First Data to provide prepaid payroll cards (“Discover and First Data Team Up on Payroll Cards,” July 16, 2007).

Reloadable prepaid cards are also another target, according to the article. A reloadable card would allow the user to add value to his or her prepaid card as the balance decreased. Research firm Celent estimates that the potential market size for general purpose reloadable cards in the U.S. is roughly $192 billion. In 2006, only $710 million was estimated to have been loaded on general purpose, reloadable cards in the U.S., compared to actual spending via credit and debit cards of $2.88 trillion.