This month the U.S. Federal Reserve released a detailed report on the state of the payments industry.
Credit, debit and prepaid cards saw growth across the board, but it was prepaid cards that grew at the fastest rate (15.9 per cent per year) among all types of payments. There were 775.4 million general-purpose cards in force in 2012, of which 333.6 million were credit cards, 282.8 million were debit cards, and 159.1 million were prepaid cards.
Before we go any further let's make a distinction between private-label and general-purpose prepaid cards, as well as EBT.
- Private-label prepaid cards: These are sold by a merchant for exclusive use at a particular merchant's locations.
- General-purpose prepaid cards: These cards display a payment network brand logo, such as Visa or MasterCard, and are issued by a regulated financial institution. They can be used wherever Visa or MasterCard credit cards are accepted.
- EBT (electronic benefits transfer): These are government prepaid programs used to distribute assistance program funds.
Source: The 2013 Federal Reserve Payments Study
Private-label cards saw the highest growth rate (3.6 per cent), followed by general-purpose cards (3.1 per cent). These increases can be attributed to the rising popularity of prepaid on both the consumer and corporate levels. Consumer prepaid cards are typically found on turnstiles at your local grocery store checkout. Corporate prepaid cards are typically used by companies for rewards, rebates, promotions, and other forms of compensation. Governments are also increasingly considering prepaid. The Canadian federal government recently surveyed Canadians about their thoughts on switching federal benefits cheque payouts to direct deposits and prepaid cards, to save money and increase efficiency. Benefits considered include Old Age Security, Canada Pension Plan, Employment Insurance, disability benefits and tax returns.
There are many unexplored uses for prepaid, especially in the business world. The segment will continue to grow as businesses discover new ways of applying the cards, whether it's helping families receive their health insurance coverage faster or recognizing dedicated employees.
The report highlighted the innovation of private-label transportation cards as a separate section of prepaid and an area that has seen tremendous growth. Many local transit systems and toll roads have moved from paper-based payments to plastic cards that can be pre-loaded with funds. In fact, private-label transportation cards exceeded all other prepaid card payments combined, reaching 9.9 billion in payments.
The report was conducted by the U.S. Federal Reserve with a sample size of 2,700 institutions. Respondents were selected from a sampling of commercial banks, state-chartered and federally chartered savings institutions, and credit unions.
To see a detailed breakdown of the report's findings check out Payments Business Magazine's recent post.