Enhancing Prepaid Cards with Remote Deposits

For several years, prepaid and stored value cards have been among the hottest growth stories in the payments landscape. According to the Federal Reserve’s 2016 Payments Study, nearly 10 billion purchases were made using these cards in 2015, an increase of more than 67 percent since 2009. Even as the growth of “closed loop” cards limited to a defined group of retailers has moderated, interest in general purpose cards that can be used anywhere non-prepaid debit cards are accepted is still growing.

Several factors underpin the popularity of prepaid cards. Millennials find them to be a useful budgeting tool, and several other demographic segments also value them for online commerce. Moreover, in the wake of the Great Recession, these cards have become a handy alternative for consumers wary of accumulating card balances or unable to qualify for a credit card. As such, they can serve as an entry-level product for the next generation of credit union members.

Many times, however, users won’t reload prepaid cards—discarding them once their initial value is depleted—and this has long been a barrier to their usefulness. This poses business model challenges, not only because of the increasing expense of manufacturing prepaid cards but also because of the lost opportunity to nurture long-term relationships with stored-value card holders.

Recent fintech innovations have enabled prepaid cards to be managed via mobile apps, paving the way for a deeper relationship between cardholder and issuer and extending the longevity of the cards. For example, until recently, crediting mobile check deposits to prepaid card balances was deemed too risky, and immediate funds availability was out of the question. However, new technologies now allow for real-time decisioning about holds on these deposited items based on characteristics of the segment of cardholders to which a member corresponds. Because of this real-time decisioning, RDC can be made available securely in prepaid card apps.

Technology that gives the mobile user in-session feedback also provides a better user experience. For example, the cardholder is given a clear explanation of why a deposit cannot be completed (e.g., unintentional duplicate, invalid account number, missing signature); a prompt to retake the picture can be issued when appropriate.

Using a robust set of application program interfaces, credit unions can enable an even more complete and customized user experience, including real-time posting and connections to various payment gateways and risk services.

These innovations afford credit unions the opportunity to leverage prepaid cards as a key component of their product portfolios, serving as a low-risk on-ramp for potential new members, especially millennials. At the same time, and without assuming undue risk, credit unions can address a community need by offering a safe and cost-effective alternative to high-fee check-cashing and payday lending.

The need for immediate access to funds is often what drives consumers to check-cashing services. With a prepaid card connected to both remote check deposit and an outside risk scoring system, credit unions could apply algorithms to provide guaranteed funds—offering faster funds availability options for check deposits—all at more consumer-friendly price points than existing “alternative finance” options.

Market traction has already confirmed the appeal of products like Venmo, GreenDot and Walmart’s prepaid solutions among millennials. Credit unions can now safely compete with these non-financial institution alternatives by providing their own prepaid cards with mobile capture technology. They also have the wherewithal to craft a superior market offer that both makes business sense and serves the public good.

Louise Steller is VP/product strategy at Ensenta, a Redwood Shores, Calif.-based provider of enterprise-wide SaaS solutions for mobile and online deposits and payments. She leads Ensenta’s product initiatives, strategy and new market opportunities.