The Future of the Payment Space: T. Jack Williams talks about why the time is right for payroll cards and prepaid financial services. A specialist in open and closed loop prepaid debit cards, Jack has spent many years advising financial services firms about mobile commerce and global money remittance. As markets have expanded, he says that a major objective for prepaid should be to create parity with other forms of financial services. One way is through an industry-wide public relations campaign to explain the benefits of prepaid as a reliable financial alternative.
AH: We have often talked about your consulting work with corporations and banks and how financial services are changing. Do you think this is going to be a good year for prepaid debit, especially in the payroll card space?
JW: It looks that way. I’m seeing companies that issue payments or any kind of disbursements, such as for travel or per diem, want to reduce costs. So there are two drivers: one to lower costs for the company and the second to reduce costs for recipients. The typical CFO is thinking ‘Why don’t I do a good thing for my company and help employees avoid check cashing fees charged by the big check cashing purveyor or payday lender?’ In the next couple of years I think we will see a significant migration from paper to prepaid debit cards.
AH: What do you think has been driving the migration from paper to prepaid?
JW: One overriding element has been that prepaid cards have finally reached maturity. People accept them and no longer see payroll cards as a kind of public disbursement card. The champion of that has been the US Treasury. Social Security and other agencies retired the paper check and mandated that disbursements and benefits be direct deposited into ACH checking accounts or stored on a debit card. They created the Direct Express debit card program for Social Security recipients.
AH: What about the general public? Do they view prepaid cards as a secure form of payment?
JW: Social acceptance has really grown. Prepaid is more secure than a paper check and less costly for the issuer. Not only that, the market has grown. Not only that. We have added a new category to unbanked and underbanked. It is “I used to be banked.”
AH: Well, I can guess what that means, but tell me.
JW: These are the people who used to be creditworthy and have credit cards and checking accounts. Now through circumstances they have lost jobs, their houses – and this group is told to look into credit unions or small banks -- when really prepaid makes a great financial alternative.
AH: Prepaid has become more mature, as you said. So then why has the general population been reluctant to see prepaid as a financial alternative? Or are they misinformed?
JW: One reason is, there has never been a national effort to educate the public about prepaid as an excellent financial alternative. Payroll cards are gaining acceptance but prepaid has never reached parity as an alternative for the general populace.
AH: Does that have something to do with public relations? In the past, you and I have talked about the lack of PR and marketing in the general press and consumer media to get the word out about prepaid.
JW: Yes, I remember that. Well, look at advertising. When MasterCard came out with its advertising campaign, the tagline read MasterCard credit/debit. Wouldn’t it be terrific if they said credit/debit/prepaid? Here’s another example. When certain banks got hammered in the press for the $5 monthly debit card fee, people were up in arms. They wanted to leave banks. Reporters covered this but never talked about a prepaid card as an alternative. They talked about credit unions and small community banks, instead.
AH: What would you want the media to say about prepaid cards?
JW: They could point to GreenDot or NetSpend, two good prepaid companies that provide all kinds of banking options. But, you see, we have not reached a point of critical mass where prepaid is considered a ubiquitous option to financial services. Again, prepaid has not reached parity as an alternative for the general population.
AH: What do you think the industry can do to promote prepaid to counteract some of the negative publicity?
JW: What the industry needs to do, as a whole, is to select a spokesperson or celebrity and pool their marketing dollars to create an awareness of prepaid as an outstanding alternative to high fee banking. We should target the younger population – Generations X and Y – the mobile generation. The industry would not endorse one prepaid brand, but would promote prepaid in general as a banking solution.
AH: How big do you think the market actually is – at least the people that are most likely to listen?
JW: My guess is that the market holds 70 or 80 million people in three categories: underbanked, unbanked, and used to be banked. Many tens of millions of people are the potential market for prepaid services as a replacement for banking. And I am not talking about an incentive card. Our major objective in prepaid is to create parity with other forms of financial services. Then we can tap in to these markets.
AH: In the corporate sector, what holds some big companies back from migrating to payroll cards?
JW: You know there is growth, but no one wants to be first and no one wants to be last. When CFOs get together, they hear that about payroll cards and incentive cards for rewards – it all ties in together to bring about acceptance. Economics and social acceptance are making it happen.
AH: Is the mobile device a way to capture more of this market?
JW: Yes, there will be a migration from plastic to mobile payments enabled by Near Field Communication (NFC). The other kind of mobile [application] is geofencing – the next generation will be geofences. Companies can read GPS addresses of phones and compare GPS addresses of merchants. That means someone in a mall or near a restaurant will get a message on their phone about a sale or offer.
Every merchant has a GPS zone, such as Walmart. Merchants can reach people through mobile devices and pop up coupons. My thinking is that will be very popular in convenience stores – such as “get a free Slurpee.”
AH: How will all this mobile marketing affect the payments ecosystem?
JW: It will change the acquiring world. Payments are ready to go through a major shift – players and paradigms are being driven by technology, but sales [via mobile] are going to be incremental. Technology does not drive incremental sales – no one says I have to go buy coffee with my NFC chip.
AH: If the banks lead the mobile wallet race, will prepaid be a part of the digital commerce ecosystem?
JW: We will see this year. Banks historically don’t want low end customers. But they are not sure they want somebody else to have this customer. Banks are taking a step back to see how it all shakes out. Big banks also have to consider Durbin. It’s still an uncertain universe. •
T. Jack Williams is President of Paymentcard Services. Contact Jack at firstname.lastname@example.org.