Report: US Open-Loop Prepaid Market Poised For Strong Growth

A new report from Mercator Advisory Group indicates strong growth ahead in the U.S. open-loop prepaid market, signaling a bright future for Canada’s own prepaid sector.

The Mercator Advisory Group forecasts growth in overall open loop prepaid loads in the United States at 4.1% through 2024, reaching a total of $466.2 billion. The report notes that some segments, like cash access, have taken a significant hit from the pandemic and will take years to recover – if at all. The report also referenced the fact that the U.S. open-loop prepaid market is highly segmented as the industry looks to determine its best use cases.

The report, 17th Annual U.S. Open Loop Prepaid Cards Market Forecast 2020-2024, Part Two, highlights the shifts across the prepaid market that is occurring because of new regulations that went into effect in April 2019, followed by the economic impact of the COVID-19 pandemic. The summary of the reported noted that “the potential for dramatic shifts among prepaid card segments is readily apparent.”

Similar to the Canadian market, government attitudes regarding prepaid cards for payment disbursal mechanisms vary. The press release in the report noted: “It is safe to say that some categories of open loop prepaid cards will change in much the same way that the overall economy is going to change, and is currently changing, under the impact of the virus.”

“Government funding is not necessary to the health of any given open-loop prepaid vertical, even if it doesn’t hurt,” said Theodore Iacobuzio, vice president and managing director Mercator’s research division. “For example, Open-Loop Restricted Access Network loads show secular growth into the new decade’s middle years.”

While the Canadian open-loop prepaid market is in its infancy compared to the U.S. market, the results from the The Canadian Open-Loop Prepaid Market: 2019a study commissioned by the CPPO and conducted by Mercator Advisory Group, showed that prepaid is poised for growth, even in smaller markets.

According to Theodore Iacobuzio, vice president of research and director of the Prepaid Advisory Service at Mercator Advisory Group: “Prepaid cards in Canada are still in the early phase of the life cycle—growth. Prepaid solutions of today will continue to evolve to meet the unique needs of the Canadian market. How quickly that evolution occurs will in large part depend on how effectively the financial institutions can integrate to, or better support, a broad range of prepaid program managers.”

According to the study, total loads across corporate- government- and consumer-funded cards were up by 12 percent in 2019, compared to 2018, and 25 percent over a three-year period, achieving consecutive growth between 2017 and 2019.

Prepaid’s ability to provide funds that are immediately available to a wide range of recipients is being used to drive market innovation with products that enrich the digital banking experience of users. Many payments facilitated at retailers’ point of sale by smartphone and mobile digital apps use prepaid technology, with the value for payment stored in the device or app.

“The digital shift in Canada has come to the forefront during the COVID-19 pandemic, exposing the number of consumers who already view digital payments as the norm and others who are increasingly adopting digital methods for day to day transactions,” Jennifer Tramontana, co-founder and executive director of the CPPO, said in July. “As new technology continues to redefine the modern payment experience, growth in the prepaid industry highlights the evolution of prepaid as a foundation for innovation in the digital banking transformation, enabling fintech companies and challenger banks to bring new and innovative solutions to market.”

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