IPC 2021 Takeaways: Traditional Payments vs Fintech? Not Quite

This year’s all-virtual Innovative Payments Conference discussed the evolution of payments, better ways to use and handle customer data, and what the future of prepaid might hold

Evolution of Payments

Throughout the conference, payments players advocated for the idea that fintechs were not trying to replace banks, processors, or other traditional FIs. Instead, fintechs are attempting to meet evolving marketplace demands that traditional providers may have been unable to, perhaps due to a lack of technology. Customer segments have unique needs, and want flexible financial instruments to meet those needs.

Consumers Looking for Flexible Financial Products

Although prepaid cards have been traditionally seen as a tool for bringing the unbanked and underbanked into the financial system, that is changing.

A pie chart shows the breakdown between three groups: Digital-only bank account holders, traditional brick-and-mortar bank accounts, and hybrids.
MetaBank reported that while the traditionalist segment is still the largest, 38% of consumers own both a traditional and digital-only banking account. (Credit MetaBank)
Statistics show the percentage of U.S. bank holders with multiple accounts, as well as their top reasons for holding multiple accounts.
Metabank research showed that a significant percentage of consumers use multiple accounts. Their top three reasons for doing so were budgeting, security, and linking to P2P apps. (Credit MetaBank)

Modular Prepaid Fits All Kinds of Use Cases

Prepaid cards are often used in crisis situations, and the pandemic was no different. The U.S. government distributed 4 million prepaid cards during its first wave of Economic Impact Payments (EIP), and then another 8 million during the second wave.² This was in addition to payments made via direct deposit and check.

Prepaid’s Quiet But Enduring Appeal

Another unacknowledged strength of prepaid is its potential for data collection. Collecting and transforming that data into actionable insights is a powerful tool for any business.

Prepaid for Data Collection and Customer Analysis

This electronic value can be tied back to a source, enabling traceability that informs a prepaid card provider about shopping habits and preferences. This allows the design of nuanced offerings that meet specific needs. One overarching theme throughout the conference was the need to really nail the customer experience-and there is no better way to do that than with data.

3 Considerations for Offering Prepaid as a Service

Those interested in providing BaaS needed to focus on a few things, according to experts at the conference: pick a niche, nail it, and do not forget the fundamentals.

Navigating Regulatory Hurdles

Established prepaid card providers also have more experience in designing financial products in a shifting regulatory environment. The pandemic happened to come at a time where regulating bodies were on the precipice of implementing new changes.

Aggressive Regulators in the U.S.?

Payments in the United States are facing a potentially aggressive and skeptical regulatory body as the government shifts from one administration to another. Specific topics touched on during the conference included The Clearing House’s letter to the Fed on the Durbin Amendment and the Consumer Finance Protection Bureau’s appeal of Judge Leon’s ruling on their case against PayPal. The overall sentiment was that increased oversight seemed inevitable.

Shifting Expectations in Europe

The European Commission has new strategies for digital and retail payments that it hopes to unveil soon, but within those strategies, one notable comment was a potential revision of the second Payments Service Directive.

Canada Requires More from Prepaid

In Canada, the government has plans to overhaul the whole of its payments regime, including regulations. The government is looking at how to best implement payments modernization, and what regulations will look like within that framework.

Better Ways to Handle (And Use) Data

Improved Business Practices, Better Customer Service

Regulatory oversight is not a new obstacle in the financial industry, but technology can add a layer of complication. With the amount of data generated by people ( 2,000,000,000,000,000,000 bytes created each day), it quickly becomes confusing as to what data is truly needed by FIs.

More Agility in Identifying and Reporting Fraud

Having insight as to what data an FI has can also impact their ability to mitigate fraud, as well as alert law enforcement to suspicious activity. The CARES Act unleashed a wave of prepaid card fraud in California, where inmates and co-conspirators were linked to the theft of $1B in unemployment aid.³

A graphic shows how bad actors would fraudulently apply for Pandemic Unemployment Assistance (PUA), then move funds off of prepaid debit cards provided by the government.
A traditional Pandemic Unemployment Assistance (PUA) scheme involved a fraudulent application, and then transference of funds using an ATM. (Credit Orange County District Attorney’s Office)

What’s in Store for the Future of Prepaid?

Industries are increasingly becoming consumer led rather than producer led, and prepaid is no exception.

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