I’ve seen the future, and it’s Prepaid

I’ve seen the future, and it’s Prepaid

About a year ago, a friend set up a call for me with Suze Orman, while she was still planning her Approved Card.  She was somewhat weirdly obsessed with the vision of a digital cash economy.  No paper. No credit.  Also, not realistic.

General purpose prepaid has basically gotten a bum rap.  The press still thinks it’s all Kardashian cards, while a big majority offer simple, clear pricing and would cost significantly less than either checking or check-cashing, assuming normal use cases.  Suze was no exception.

Then Green Dot didn’t do its industry any favors by scaring its investors to drop the company’s value 60%.  Netspend is doing better, but is hardly a Wall-Street darling.  So the category appears out of favor.

I’m super bullish on prepaid and believe it’s going to become much bigger than most people seem to think.  Here’s why:

Checking and check cashing substitute.  As reiterated in the Journal today, “Free” checking is only for those who can keep a substantial balance.  I believe prepaid accounts will remain an attractive alternative to those who are fed up with banks and those seeking better alternatives to check-cashing.  Despite all the above, prepaid continues to grow at breakneck speeds in the “underbanked” demographic (and includes many fully banked customers).

Third party banking.  There are many big companies who enjoy substantial payments relationships with consumers.  Just like Wal-Mart was really seeking a banking license to decrease their interchange fee losses, many others can and will own their payments relationship with their customers, and leverage their trusted brand.  A AAA account or Apple account or New York Life account are not far away, I believe – and prepaid makes this possible.  My friends at Rev launched an innovative boarding pass/debit card for Air New Zealand.  We see prepaid companies looking to white label a program for third parties, and I think that makes a lot of sense.

Mobile. This awesome mobile wallet you’ve been reading about? Chances are it will be based on prepaid.  There may or may not be a card involved, but prepaid is not a physical card as much as it is a technical and regulatory variation on how traditional bank accounts are managed.  Note the Google Wallet team recently bought prepaid processor TxVia to juice up its efforts.

Real-time fund transfer. Ever wondered why in 2012 we still have to wait 3-5 days for checks to clear? Or worse, to pay a bill electronically? Or even worse, transfer funds to and from yourself between banks electronically?  The culprit, among other things, is a creature called ACH!  How do we make payments real-time? Prepaid.

 The underbanked just scratch the surface of prepaid potential.