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Overall, the forecast is strong for open-loop prepaid cards—loads are expected to reach $353.6 billion by 2020—but not every segment will partake in the growth. That’s the assessment in a new report from Mercator Advisory Group Inc.
Open-loop cards, which can be used at most merchants and carry a major card network’s logo, had been forecasted by Mercator in 2016 to have a compound annual growth rate of 7% through 2018, but declines in some segments and slower growth in others led the Maynard, Mass.-based consultancy to revise its overall expectations. It forecasted in early 2016 that loads would reach $343 billion in 2018.
The segment that stands out is benefits, which had a 16% year-over-year growth rate in loads in 2016, according to Mercator’s “14th Annual U.S. Open-Loop Prepaid Cards Market Forecasts, 2017-2020” report. The growth was driven by a $90 million increase in annual loads, primarily for tax-exempt transit and health-care payments.
“Benefits is a small market, and so relatively small-dollar increases provide a large percentage increase,” Tim Sloane, vice president of payments innovation at Mercator, tells Digital Transactions News via email.
Remittance and person-to-person payment usage of open-loop prepaid cards took a dive, however. They lost 16% in volume. “Remittance and P2P have seen declines since 2014, and this year was no exception as mobile P2P and other remittance methods continue to grow in popularity,” Sloane says.
Indeed, research firm eMarketer Inc. predicts that mobile P2P transactions will grow to $244.03 billion by 2021, up 103% from the $120.38 billion estimated for 2017. Some 47% of younger consumers who aren’t using a P2P service now are expected to by the end of the year.
Travel spend is down, and general-purpose reloadable cards’ growth rate slowed by 1%, Sloane says. “The open-loop gift card did better as it grew by 8%, which reflects increased usage by the general population, in part driven by fears that closed-loop [prepaid] cards might become useless due to highly visible store closings.”
Another factor affecting open-loop prepaid card growth is the uncertainty surrounding further regulation, chiefly the Consumer Financial Protection Bureau’s proposed ruleon prepaid accounts. The CFPB in April delayed the effective date of the rule by six months, from Oct. 1, 2017 to April 1, 2018.
“It is hard to underestimate the impact of the regulatory environment and consumer sentiment,” Sloane says. “On the regulatory side, prepaid providers have been waiting for CFPB’s official ruling for months. Because cards sit in the distribution channel for several months, it simply isn’t prudent to make any changes when it is clear new rules are coming that will impact the [terms and conditions] included with the card as well as the card carrier itself.”
The uncertainty also may affect consumers, he suggests. “But not only has innovation slowed, there is also the financial difficulties that those with low and moderate income continue to experience, which reduced spend.”
One potential growth area is the use of prepaid virtual cards in corporate business-to-business disbursements. “The buyer can pay the seller directly from the [enterprise resource planning] system by issuing an electronic disbursement virtual card,” Sloane says. “This enables last-minute payment, which reduces the time for which funds must be transferred out of the corporate account in the funding account, enabling a better cash position.”
