Are Plastic Cards Headed for Extinction?
Probably not. Even so, the case for virtual prepaid accounts is growing stronger. A journey through the landscape—including a stop at a recent Apple conference—shows why.
By Drew Sullivan, PaymentExecutive.com
One of the most exciting innovations that came out of Apple’s Worldwide Developers Conference 2017 was the “Venmo competitor,” Apple Pay Message, that’s built on a digital debit card called Apple Pay Cash. APC is powered by prepaid leader Green Dot and is the latest deployment of a virtual prepaid account. In 2016, Square launched a virtual prepaid debit account linked to the Square Cash app as a key element of its evolving payment strategy.
And the trend toward virtual is not just for prepaid. China UnionPay has announced the UnionPay Cloud Quick Pass QR payment system, which enables a customer to make a payment by presenting a QR code rather than a plastic card. And traditional financial institutions like Wells Fargo, Chase and Bank of America are rolling out cardless ATMs to enable account holders to get cash without their debit cards.
What is the common thread across all these developments? Mobile apps. With the U.S. smartphone penetration exceeding 80 percent, mobile solutions are the future and businesses everywhere are embracing ways to take cardless payments.
So the cards in your wallet are about to go the way of the dodo, right? Not anytime soon.
NFC, QR codes and temporary PINs have been around for a while and are only operational in a few million of the hundreds of millions of locations that accept EMV and magstripe plastic cards worldwide. But a virtual prepaid account makes a lot of sense for some important verticals.
Incentives, Rebates & Rewards
Businesses send out millions of one-time payments every year and prepaid cards have become the predominate solution. When Maytag sends out a $500 rebate prepaid card, the company enjoys both marketing exposure and cost saving versus sending a check. Those benefits far outweigh the cost of the plastic card. But if a retailer wants to send a $10 thank-you to customers, or a health care provider needs to refund a $30 co-pay, then a virtual prepaid account is much more cost-effective than a physical card. The recipient can use it to shop online, get cash at a cardless-enabled ATM or even get cash back at select retailers.
Travel & Entertainment
If an employee travels often, then it makes sense to provide a prepaid or credit card to cover expenses. However, many employees only travel a few times a year and they don’t want to use their personal cards. A virtual prepaid account can be used to pay for hotels, seminars and other common expenses. And when linked to a mobile account they can be used at locations that accept NFC, QR codes and temporary PINs. So why incur the cost of issuing a physical card when a virtual account can meet the need?
Mobile Apps and Direct to Consumer
Marketing directly to prospective prepaid customers can be very productive but it is costly. Sending out plastic cards that are never loaded is an expensive proposition. Even when you have a cardholder actively select your prepaid card online, the need that drove that decision often fades by the time the physical card arrives two weeks later. By offering a virtual account that can be funded immediately from a bank account or a Green Dot Money Pak, you can meet the immediate need and increase the probability that the customer will continue to use the account when the plastic arrives.
For mobile-first consumers, a virtual account with an optional prepaid card may be the best solution. Users already have chosen an app they trust for other purposes, so by adding a virtual prepaid account, they now have a solution for in-app purchases, paying bills and shopping online. And if they want a physical card, they can request one once they see the value of using a prepaid account as a primary or supplemental financial tool.
The plastic prepaid card will continue to be a popular payment form factor. We will see enhancements like EMV and contactless migrate from credit cards to prepaid debit. But virtual prepaid accounts have come of age. As companies look for ways to reduce expenses, implement better controls and implement faster payments, usage of virtual accounts will continue to grow.
Drew Sullivan is the founder and president of PaymentExecutive.com a consulting firm focused on prepaid, remittance, bank products and cross-border payments. Drew has more than 25 years of experience in business development, account management, business strategy, compliance and product management in the payments industry. He may be reached at [email protected]. This article originally appeared on PaymentExecutive.com.
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