There are times when the market for a particular product goes up, a time when it goes down, and, then, there is the rare time when a market profoundly changes. Because we are too close to the action to see the overall trend, it appears to be random and chaotic. It is only in retrospect that we can analyze what happened. But, for those who can sense a trend and capitalize on it, confusion can represent opportunity.

To say that the market for spend cards is chaotic today, is to grossly understate the obvious. Confusion abounds with government involvement in the financial industry, bailouts, bankruptcies, a nagging recession and continuously shifting consumer buying patterns have all combined to make life very challenging for those who are responsible for strategies for marketing financial products. Uncertainty abounds, bringing risk, and its eternal partner, opportunity along with it.

Visa recently announced that spending on its debit cards in the U.S. surpassed credit for the first time in the company’s history. In 2008, Visa’s debit payments volume was $206 billion, compared with credit payments volume of $203 billion. The volume of debit transactions first exceeded the volume of credit transactions in 2002, and now represents 70% of Visa’s total U.S. transactions.

Visa attributed this to a general migration away from cash and checks to electronic payments. Evidence how irritating it is for the person in line ahead of you at a supermarket to whip out a checkbook instead of an ATM card. Of course, that universal villain, the Internet, has accelerated this trend to a great degree.

MasterCard and Discover are also working on debit and prepaid products, although they have suffered a couple of notable setbacks recently. In September, Royal Bank of Scotland Group PLC’s Citizens Financial Group Inc. announced it was moving to Visa. More recently, J. P. Morgan Chase & Co. decided it would shift the debit portfolio of Washington Mutual to Visa. This portfolio was at one time, MasterCard’s largest debit issuer.

Undaunted by these apparent setbacks, MasterCard is looking to prepaid as an untapped, or under exploited, market. MasterCard had a study done by Boston Consulting Group Inc. last year. The study concluded that the global prepaid open-loop market would grow to almost $680 billion by 2015, more than three times what it was in 2007.

Although this is still a small number comparatively, the lure of new and untapped markets has drawn the attention of MasterCard, and banks, who see prepaid as a growth opportunity, and one that does not require risky consumer debt financing. Right now, it is smaller banks who are attracted to the niche opportunity afforded by prepaid cards.

MasterCard has made known its intentions to focus its efforts on the dynamic Hispanic market. In late May, it rolled out a Spanish language marketing and consumer awareness program. MasterCard would like to convince the estimated 44 million Hispanics living in the United States to use its prepaid cards instead of cash. Many Hispanics are not formally documented in the U.S., i.e. illegal aliens, so they lack access to traditional banking products.  

Understanding this, MasterCard will promote the convenience of prepaid cards to this vast population. Recent market research is showing a trend by consumers to use debit cards for everyday, non-discretionary purchase of necessities. In fact, a Visa analysis of its transactions found that 52% of the debit volume was for food and clothing.

Based on the problems that led to this current economic crisis, banks are likely to reduce the amount of money they are willing to put into credit card financing. This tightening of credit will probably move many credit card holders towards debit and prepaid cards, since they will still need to use plastic to pay bills and make purchases.

So, we could be seeing a perfect storm of marketing, tight credit and a need for electronic transactions, pushing the prepaid card market to new highs. This will be greeted by financial institutions as a positive development, offering new revenue opportunities without going out on a limb with credit risk.

As Alexander Graham Bell said, “When one door closes another door opens; but we so often look so long and so regretfully upon the closed door, that we do not see the ones which open for us.”

From chaos comes opportunity, for those that choose to see.