The Latest Forecast Is Especially Sunny for Prepaid Cards

Credit card charge volumes have fallen this year and debit card volumes, while still in positive territory, are running far below the growth rates they enjoyed before the recession hit. But prepaid cards remain the one bright spot, according to a new market analysis from Mercator Advisory Group Inc. Maynard, Mass.-based Mercator's latest annual forecast, for 2009-12, predicts that combined load volume on closed-loop and general-purpose, or open-loop, prepaid cards will hit $525.8 billion in 2012, up 112% from $247.6 billion last year. Growth rates for open-loop cards are getting into high gear and will account for most of the expansion. Mercator estimates open-loop cards' compound annual growth rate at 47.9% between 2006 and 2012 versus 5.3% for closed-loop cards. In all, Mercator predicts load volume of $292 billion on open-loop prepaid cards in 2012, up 383% from $60.4 billion last year. Loads on closed-loop cards will grow 24.9% from $187.2 billion in 2008 to $233.8 billion in 2012, when open-loop loads will surpass closed-loop loads for the first time. The prepaid market is growing because providers are doing a better job in meeting customer needs, and because of the recession, according to Brent Watters, senior analyst in the firm's prepaid advisory service. “You're seeing better pricing, you're seeing enhanced feature functionality, you're seeing a better understanding of the end user and their needs,” Watters says. “You're also seeing the effect of the economy, which is having an impact on behavior, which results in people moving away from credit and toward debit, prepaid and even cash.” Mercator, which breaks the prepaid card market into 33 segments, compiles its forecasts from data provided by payment processors and other sources. Due to the receipt of better data from processors over the past year, Mercator revised many of the numbers in last year's forecast, according to Watters. Mercator now has data from 75% of industry processors, a “significant increase” from those providing data last year, he says. Mercator lowered some predictions but raised more. Due to corrections in estimates for the open-loop market, Mercator now estimates that total load volume in 2011, forecast last year to be $362.3 billion, instead will be $427.5 billion. Some $207.9 billion of those loads will be on open-loop cards and $219.6 billion will be on closed-loop cards. Watters says general-purpose reloadable cards, health savings account cards and travel cards all are getting more loads than Mercator earlier predicted. According to Watters, the three leading market segments in 2012 for open-loop cards compared with actual 2008 loads will be general-purpose reloadable cards, $118.5 billion in loads versus $8.7 billion in 2008; consumer-incentive cards, $14.6 billion versus $4.2 billion, and Social Security, $25.2 billion versus $1.1 billion. A U.S. Treasury Dept. program to load Social Security payments onto prepaid cards for unbanked or underbanked consumers has been a big success, according to Watters. Comerica Bank issues the card in partnership with processor Affiliated Computer Services Inc. (Digital Transactions News, July 28). “The traction it got after the pilot was incredible,” Watters says. On closed-loop cards, the top three market segments in 2012 will be games and ring tones, digital media, and consumer incentives, all with more than $7 billion in loads, Mercator predicts. The closed-loop market also is starting to see virtual prepaid cards, according to Watters.