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Prepaid Cards ~ Innovation and Inclusion

January 2022
Fintech & Payments

Nick Maynard

VP of Fintech Market Research

Prepaid Cards Leading Payments Innovation

Over the past five years, payments have been accelerating along every conceivable use case, with new payment methods emerging all the time. However, there has still been significant innovation and interest in established technologies, including prepaid cards. 

Prepaid cards are an important payment mechanism that have seen renewed interest in recent years, as well as several developments in terms of capabilities. 

Closed Loop vs Open Loop

An important area of definition is closed loop versus open loop. These are defined below: 

  • Closed loop: This is where cards are restricted to use in certain stores or merchant categories.
  • Open loop: This is where cards are unrestricted and can be used at any place where cards are accepted. 
To date, both kinds of prepaid cards are in circulation and popular; being used in different use cases. Closed loop are gradually replacing specific types of cards, such as fuel cards or other corporate cards. Open loop cards are also popular for travel, used by the unbanked and other use cases.

The Benefits of Virtual Cards Adoption

Virtual cards can also be single use, for a specific transaction, or reusable. They are generally integrated with wallet apps, such as Apple Pay, Google Pay or PayPal for the greatest ease of use. 

Virtual cards have vast potential within the prepaid cards space. To start with, they can lower costs. By offering a virtual option with no physical option, issuance costs can be lower. This will be useful across prepaid card use cases where scale is important, such as bulk disbursement of government benefits for example, or in a corporate setting. However, as virtual cards require the use of a modern smartphones, they can never be a complete solution, given that not all users will have access to these.

The Disruptive Impact of Digital Wallets

Until the rise of wallets, the only choice was for prepaid cards to be either sold at retail locations or mailed out to recipients. This raises the prospect of mail theft and other measures that can be major risks. Conversely, by offering digital issuance via a digital wallet and top-ups in this way too, potential theft is no longer an issue. Indeed, this reduces the barriers to entry and significantly decreases the costs of prepaid issuance and management.

This shift to digital issuance however requires different skills on the part of the platform provider. They still need to be able to issue cards, but they need the capabilities to do this in a purely digital way, rather than relying on physical methods. They also need to be able to seamlessly manage card usage, restrictions and top-ups.

Fundamentally, digitalisation lowers the barriers to entry for prepaid cards, reduces costs and boosts convenience. This will be of particular benefit to corporations, that require low-cost solutions to manage spend, and as such, we expect this to be a major focus for platforms going forward.
 

► Prepaid Cards Market Research

Our latest research found:
  • The value of transactions made over prepaid cards will exceed $4.1 trillion globally in 2026; up from $2.3 trillion in 2021 - a substantial growth of 75%.
  • The growth in prepaid cards will be driven by the ongoing replacement of cash, as economies move increasingly towards digital payments.
  • Prepaid cards will be critical to ensuring that the unbanked are included in the rush for digital payments.
  • While the US will account for over 43% of global transaction values in 2026, there are other significant opportunities emerging. China is seeing increasing prepaid use, and as international tourism recovers, prepaid cards for travel money can benefit.

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