Digital and Other New Services To Drive 7%-Plus Annual Growth in the Prepaid Market, Aite Predicts

The prepaid market can expect to grow more than 7% annually over five years, but unlike its early days in which plastic gift cards and government payments dominated, much of the growth will come from new virtual uses for prepaid products, according to a new Aite Group LLC report.

Boston-based Aite estimates total load volumes on prepaid cards were $407.6 billion in 2016 and $443 billion last year. Loads will grow to $578.1 billion by 2020, for a five-year compounded annual growth rate of 7.2%.

Government benefits and related payments had the biggest share of the prepaid market in 2016, accounting for 36% of loads. But Aite forecasts annual growth in government prepaid card disbursements will be only 1%. “It’s the most mature and the most saturated” part of the prepaid market, report author Kevin Morrison, an Aite senior analyst, tells Digital Transactions News.

Instead, prepaid’s future growth will come mostly from virtual gift cards, more business-to-consumer payments, and new niches such as payments for gig-economy workers and P2P payments linked to prepaid accounts, according to Morrison. “That’s where you’re going to see the opportunity,” he says.

Gift cards, currently the second-biggest part of prepaid with 34% of the market, can expect annual growth rates of 11.6%, and hit $243 billion in gross domestic volume by 2020, according to Aite.

A big factor in that growth, according to Morrison, is Amazon.com Inc., which has offered plastic gift cards for years and introduced a virtual version more than a year ago, giving a lift to a niche that already featured a number of players. “Virtual cards, digital cards, they’ve been around a while; it takes a big entity like Amazon to drive that market,” he says.

Recipients can receive an Amazon eGift card by e-mail. If the recipient has an Amazon account, she can click on the image in the email, which triggers a process that loads funds into her account and makes them available for instant use, according to Morrison.

Digital prepaid cards also are making their way into the so-called gig economy in which freelancers and temporary workers get paid electronically instead of by check. In 2016, prepaid card services provider Green Dot Corp. struck a deal with ride-sharing pioneer Uber that enabled drivers to get paid with funds deposited into a Green Dot account accessible through a debit card or through Green Dot’s GoBank mobile app. Last year, instant payments were added to the service via the Visa Direct and Mastercard Send services.

Amazon is also pitching its closed-loop gift cards to companies as payment alternatives for freelancers or other temporary workers, according to Morrison. By doing so, it’s taking gift cards beyond their original niche, with sales heavily skewed to the late-year holidays. “Gift card is growing outside of that traditional giving period,” he says.

Meanwhile, prepaid accounts increasingly are being marshaled for person-to-person payments. Recent examples include Apple Inc.’s Apple Pay Cash, which uses a virtual card from Green Dot, and Square Inc.’s Square Cash. “The largest area of growth … mostly because it’s starting from zero, is P2P,” says Morrison.

In a March 2017 report, Aite estimated the P2P market would be valued at $316.6 billion by 2020 on the strength of a compound annual growth rate of 17.5%.