Trends in consumer spending indicate that 2015 will be the year of the ‘prepaid economy’, according to financial industry experts, as consumers increasingly reject credit cards, seek greater protection from online fraud and switch to new ways to access services such as public transport.
New figures show that UK has seen an explosion in the number of prepaid card products available to consumers, from 50 in 2007 to over 240 currently on offer. The Prepaid International Forum (PIF – the trade association that represents the prepaid card industry) also reports that with this growth in availability of prepaid products is driving greater regular use of prepaid cards to pay for goods and services.
These payment cards can be used very much in the same way as normal credit or debit cards, but are preferred by a growing number of people because they carry a pre-loaded, set amount of money rather than accessing money directly from a person’s bank account or running up credit card bills.
The rise in prepaid cards has also gone hand-in-hand with the decline in credit card usage. In June last year the British Retail Consortium revealed that the number of transactions involving credit cards had fallen by 13%, indicating that post-crash UK consumers are more cautious about credit, which has opened up a gap that prepaid cards are starting to fill.
While prepaid cards are well established in the UK as gift cards (£5bn is spent on gift cards in the UK each yea) or as an alternative to taking foreign currency abroad, growth is being fuelled by a range of new applications.
For example, consumers are increasingly using prepaid cards to reduce the risks of online shopping. Across the EU 6% of all prepaid cards are used specifically for online purchases, to avoid the risk of bank or credit card details being stolen and used by fraudsters.
Prepaid cards are also seen as beneficial for those who may not have a bank account, such as teenagers, but still need to be able to make purchases online or over the counter when it’s not convenient to carry cash. Parents see prepaid cards as offering greater freedom and security for their children, but without the risk of overspending.
Two per cent of prepaid cards in the UK are being used in this way, as alternatives to bank accounts, a figure likely to rise when banks begin charging for all but the most basic banking services. This is the case in Italy where 15m people do not have bank accounts and are 3 times more likely to use a prepaid card as an alternative to traditional banking.
Organisations in the private and public sector are also seeing prepaid cards as offering specific solutions when it comes to wanting to ring fence spending in some way, such as a replacement for company credit cards or even handing out government benefits. By 2017 MasterCard estimates that the UK and Ireland will pay $15bn of government benefits issued through prepaid cards. They also offer convenient ways for customers to access services on a flexible basis, such as the growth in public transport and parking cards in the UK (for example Oyster cards in Greater London).
Alastair Graham, PIF spokesperson, said: “Prepaid products provide flexible solutions where cash, credit or debit cards are not the answer. The digital world is creating many new applications for this technology, where people want to use cashless payments in a way that is controlled and separated from the rest of their finances.
“Increasing online fraud is a good example of a driver for these changes – consumers want the flexibility of being able to buy over the Internet, but have an increasing awareness and fear of financial details being hacked or misused.
“As consumers get more used to having a number of prepaid cards in their wallets, their application and use will continue to grow.”
The Post Office is one of the UK’s biggest drivers of growth in prepaid, with over 4m prepaid accounts held by UK consumers. It offers various prepaid accounts for gift cards, travel money as well as for general card payments and savings clubs.
Michael Birchall, payments product manager at the Post Office, said: “The Post Office recognises the major and growing role prepaid products play in mainstream transactional banking, travel, gift and savings markets. Our new prepaid Post Office Money Card is being marketed as an integral part of Post Office Money services and reflects our view that prepaid is a highly sought after consumer proposition.”