Viewpoint: Prepaid—A Business-to-Consumer Payments Solution for Millennials

By Raju Sitaula, Citi Prepaid Services

Many people still see prepaid cards as a solution for unbanked and underbanked customer segments. Clearly the financial inclusion made possible by prepaid cards for those outside of traditional banking is an important aspect of the prepaid value proposition. However, there are many other use cases for prepaid where the construct offers a powerful solution to address the gap left by traditional banking products and enhance the customer experience.

A 2015 Federal Reserve study found that the preference for prepaid cards is driven by age rather than income level and that the growth of prepaid card ownership is highest among high-income millennials.^[1] The growing popularity of prepaid among millennials presents opportunities to build and commercialize new prepaid value propositions that enhance the payments experience in one of the largest payment flow segments—business to consumer (B2C)—where millennials are shaping customer expectations.

Consumers are ahead in digital payment adoption compared with businesses, and—despite significant prepaid program success in the B2C market—paper checks still dominate B2C payments flow. Aside from the obvious benefits of cutting expenses and removing inefficiency, prepaid cards offer businesses an opportunity to leverage payments to drive customer loyalty and engagement.

Millennials Matter

One of the biggest challenges businesses face today is developing a customer experience construct that can attract and retain millennial customers. This is important because millennials are expected to drive most of the spending growth in the U.S. Every touch point with this customer segment is an opportunity to make an impression and enhance brand loyalty. Payments is one of the most important touch points and shapes customers’ perception of the brand. Businesses no longer can afford to keep payments siloed—they need to be integrated with the broader customer experience strategy and need to be seen as a part of ongoing customer engagement instead of a one-off transaction.

The simplicity of a prepaid card—a prefunded account that can be accessed via plastic card or virtually—makes it a perfect channel to engage millennials who put a premium on control, simplicity and speed. They expect instant gratification, have an aversion to credit and are reluctant to share bank account details. In short, their predispositions make them a perfect target for prepaid-based payments solutions.

There are several other factors that make prepaid an ideal solution for B2C payments. With millennial customers in mind, many businesses are building digital ecosystems to interact with their customers including mobile-based servicing models, paperless communication and even integrated loyalty applications with customized offers. There is a need to integrate payments into the digital ecosystem and prepaid—especially virtual prepaid—offers a compelling value proposition that complements broader digital goals.

Empowering customers with payment choices also drives engagement and loyalty with millennials. Instead of sending customers a check—whether it’s an insurance claims payment or a refund—enabling the recipient to choose a payment method puts the customer in the driver’s seat and increases satisfaction. Adding prepaid as a payment choice is an effective way to address diverse customer payment preferences while also offering added benefits that traditional payment methods could never match, like rewards or merchant discounts.

The prepaid card already has established itself as a key solution to drive B2C payment flows. Its simplicity, flexibility and efficiency create value with which paper-based systems could never compete. In a survey targeted to millennials we conducted recently, a majority of the respondents who received B2C payments through prepaid cards expressed positive sentiments. The key attributes that drove satisfaction were being able to use it instantly, convenience, safety and the budgeting aspects of the product. The growing size of millennials and their increasing share of consumer spend make prepaid, especially virtual prepaid, not only a cost-effective and efficient payment tool, but also a key component of a broader strategy of driving customer engagement and loyalty through preferred payment channels.

In many businesses, payment channels are untapped resources when it comes to enhancing customer experience. Businesses that understand the power of payment channels to engage millennial customers and develop a payments experience that focuses on preferences of their customers will be rewarded with customer loyalty.

Raju Sitaula is North America Product Head for Citi Prepaid Services—a market leader in corporate prepaid and electronic payments solutions. Raju can be reached at [email protected].

In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.

^[1] Millennials with Money Revisited: Updates from the 2014 Consumer Payments Monitor – Federal Reserve Bank of Philadelphia. December 2015.