Driven by growth in government programs, corporate payroll cards, and health care, the network-branded prepaid card sector can expect its U.S. load volume to nearly quadruple from an estimated $120.2 billion last year to more than $440 billion in 2017, according to research commissioned by MasterCard Inc. The study, by Boston Consulting Group Inc., predicts that while foreign countries will grow faster, the U.S. will still account for 53% of the global prepaid market in seven years.
Boston Consulting Group examined prepaid cards in 46 countries for its study, including so-called open-loop (also known as general-purpose or network-branded cards because they have a major-brand payment card logo), closed-loop, and other card varieties. While gift cards and other closed-loop cards issued by merchants got the prepaid industry off to a strong start in the U.S. more than a decade ago, MasterCard’s study reinforces earlier research showing that the open-loop variety is now where most of the action is (Digital Transactions News, Dec. 1, 2009).
Governmental bodies hoping to reduce the cost of distributing benefits by paper check are becoming big prepaid card enthusiasts. Some programs such as the U.S. Treasury Department’s card for distributing Social Security benefits via a Comerica Bank MasterCard are seeing strong acceptance, and many states distribute unemployment compensation and other benefits by prepaid cards. Now states are looking at other places to replace checks, Laura Kelly, MasterCard’s group executive of global prepaid solutions, tells Digital Transactions News. “We’re starting to see traction in payroll,” she says, noting that Texas recently posted a request for proposals (RFP) about paying its employees via prepaid cards.
Other states are considering payment of tax refunds on prepaid cards. New York, the nation’s third most-populous state with 19.5 million people, according to the U.S. Census Bureau, has posted an RFP for such a program, according to Kelly. “That’s a good state to go electronic because that’ll give people comfort that it can be done,” she says.
States and the federal government have encouraged people with bank accounts to take the direct-deposit option for payments that they previously distributed by check, with prepaid cards mostly aimed at the unbanked or underbanked. “Twenty-five percent to one third of the United States population is either unbanked or underserved,” says Kelly.
The MasterCard study predicts government open-loop prepaid card programs of all types to grow from an estimated $31.7 billion last year to $163 billion in 2017. Corporations, however, also are driving growth, especially with payroll programs. The study forecasts loads on payroll cards to increase to $99.6 billion in 2017 from $25.6 billion in 2009. Companies with high turnover or many seasonal workers, including those in the retail, food-service, and delivery sectors, are especially interested in payroll cards, Kelly says.
Companies also are increasingly using open-loop prepaid cards to distribute funds from tax-advantaged accounts such as Health Savings Accounts (HSAs). Boston Consulting Group estimates health-care prepaid card loads will grow from $15.3 billion in 2009 to $53 billion in 2017. Meanwhile, the study predicts general-use prepaid card loads to more than double in the same period to nearly $50 billion.