Prepaid Cards: On Course to Becoming 21st Century Banks

February 10, 2011

Who needs banks when there are prepaid debit card companies ready and able to make consumers better offers?

Kristen and Kweku, a thirty-something couple residing in Washington, DC, don't like banks for a number of reasons: too expensive, inconvenient hours, government bailouts, among others. They're planning a trip to Kweku's homeland, Ghana, however, and want the convenience of a credit/debit card.

I suggested they try prepaid debit cards, and observed as they shopped online, finding and enrolling in a program that fit their needs literally in a matter of minutes. The cards they selected, from NetSpend, came with some pretty sweet features and add-ons, too, like a $10 monthly fee for free, worldwide ATM access. And no worries about lost/stolen prepaid cards: report the loss within 24 hours and the cardholder incurs no losses.

NetSpend, which has been in the prepaid card space for about 10 years, went public last year, a few months after another leading prepaid card company, Green Dot, completed a successful IPO. Both IPOs drew a lot of investor interest, and for good reason: the unbanked/underserved population is growing; it's not contracting.

The reasons behind this growth are almost too numerous to list, but include increasing numbers of unemployed and underemployed as the longest recession in memory drags on, and a general sense that banks (especially the larger ones) aren't interested in doing business with people who don't have lots of money.

For their part, many bankers think the unbanked are unbankable. Of course, they're are wrong. It's just that many of America's unbanked have different notions about convenience, service, security, affordability, and about what it takes to establish financial security.

Prepaid companies are tuning into the unerserved market. Companies like NetSpend, Green Dot (and its partner Walmart), and MPOWER Labs, an investment incubator supporting Mango, which sells prepaid and other financial services to Hispanic populations - are making great strides, evidenced in part by Green Dot's and NetSpend's successful IPOs in a down economy. These companies are creating a 21st Century model for financial services - one that offers a viable means for millions of Americans to build and maintain financial security.

Only 3% of the total global need for microfinance is being met today

_{-World Vision}