The rapid growth of the Canadian open-loop prepaid market has cemented the case for prepaid being a nimble platform and the innovation rail of choice to bring new digital payments and banking solutions into market. This is just one of the many topics being discussed at the 2022 CPPO Prepaid Symposium on June 1 at the Toronto Region Board of Trade.
Galileo Financial Technologies — who will be participating in the panel “Riding The Rails To Innovation: Elevating Prepaid’s Platform Potential” — shared insights from Kevin Ohlson, Galileo’s Head of Strategic International Expansion — in a Q&A that covers what’s driving prepaid growth, innovation potential for the market, overlooked prepaid use cases and a glimpse into the future of the industry. Catch the interview below.
What do you think is the biggest force propelling the prepaid market’s growth today?
Ohlson: Prepaid growth is being driven by a few key factors, including the simple fact that more and more consumers are realizing the benefits of prepaid cards, including convenience and flexibility, ease-of-use, security and usefulness for both underbanked and fully banked users.
But along with this organic growth in more traditional prepaid use-cases, we’re also seeing a dramatic expansion of prepaid into new verticals, such as e-commerce, gig and freelance payments, corporate expense and B2B spending, insurance, healthcare, and government benefits and aid. Finally, a lot of fintechs and other innovators have realized that prepaid accounts are uniquely well-suited to being embedded into a mobile app or platform to power the payments capabilities of such offerings in a way that’s seamless and simple for end-users and relatively easy to deliver and customizable for providers. So it’s really a perfect storm of those three factors that’s powering the major prepaid growth we’re seeing in markets all over the world.
What’s one product or service that prepaid is impacting today that isn’t getting enough attention in the payments industry?
Ohlson: Business expense management is one area in which prepaid can offer a lot of value and improvements. One of the major challenges around expense management has always been the reimbursement process, which can be very time consuming and inefficient, and often requires employees to front money for the company if they have to use a personal card and wait to be reimbursed.
With a prepaid business expense management card, a manager can load a set amount onto the card as a per diem or to pay for an air or hotel booking. That greatly reduces–or even eliminates–the time spent on reimbursements, and also enables the company to better track and manage expense outlays proactively, and reduce their exposure to things like expense fraud. Prepaid also is an ideal card-on-file option for regular vendor payment or as a one-time-use card option for business spending, and that flexibility is very useful to companies of all sizes, ranging from SMBs to enterprises.
What’s the biggest prepaid innovation use case you’re seeing today?
Ohlson: A one-time-use virtual card pushed to a mobile wallet. Prepaid is in many ways the ideal format for this use case, because it’s generally simpler to issue a prepaid card than a credit card or traditional debit card, so it’s pretty frictionless to push-provision a prepaid card to a mobile device. From there, the card can be funded quickly and the user can start spending right away online or in-store via contactless acceptance. An easy, seamless onboarding and activation process is critical, because it’s been shown to be a key step in converting users who sign up for accounts into active, engaged customers who make purchases and drive revenue for providers over the long term.
How can the prepaid market best position itself to navigate today’s regulatory climate?
Ohlson: It is important that a prepaid card follows a proper definition and the relevant guidelines for that product type. Those categories might include: payroll card; government benefit account; marketed or labeled as prepaid; issued on a prepaid basis in a specified amount or is capable of being loaded with funds after issuance; is not a checking account, a share draft account, or a negotiable order of withdrawal (NOW) account.
Particularly as prepaid products become incorporated and embedded into other types of services as the underlying payment tool, it’s very important to have a clear understanding of the specific regulatory and compliance requirements that apply. It’s also vital to closely track any changes in those expectations and guidelines as the regulatory framework around prepaid continues to evolve in jurisdictions around the globe.
What’s next for prepaid innovation over the next 1-5 years?
Ohlson: Traditionally, restaurant workers’ tips from card-based sales have been paid out in cash at the end of the shift. But with the use of cash drastically declining, especially post-pandemic, restaurants generally don’t have as much cash on hand to make these payouts. Prepaid can be an ideal solution to overcome that challenge; businesses can load tips onto a prepaid card at the close of the shift and employees can use those funds immediately—with the added benefit of not having to carry around cash or make the extra step of depositing cash into a bank account. This is a use case that’s likely to gain significant ground over the next few years as the shift toward a more cashless economy continues.