Imagine a world without cash. There would be no more coins weighing down your purse or wallet and certainly no more visits to the ATM. That scenario seems a long way off, but some inside the banking industry are hoping prepaid cards will be the solution to a cashless future. The cards, which have been around in the United States since the 1990s, are now getting popular on this side of the ocean. They offer consumers an alternative to the more traditional debit or credit cards and are seen as safer because you can only spend what has been loaded onto them. The Prague Post sat down with Matt Lanford, MasterCard’s head of prepaid products in Europe, at the recent Prepaid Summit: Europe 2012 to find out more about this expanding sector.
The Prague Post: What were the reasons for taking this year’s summit to the Czech Republic?
Matt Lanford: The CEE region has a great opportunity for prepaid. Every country in Europe is growing double-digit – as a whole, Europe is growing 27 percent – but I look at countries such as the Czech Republic and Poland, which are growing at 35 percent to 40 percent, and see a significant opportunity. In this part of the world there is still a large unbanked population, so there are also benefits from a financial inclusion perspective. Close to 20 percent of the population in the U.S. do not have bank accounts, but it’s even higher in Eastern Europe, in places like Romania, where it’s around 80 percent.
MasterCard’s Matt Lanford says it is easier to budget and safer to make purchases with prepaid cards.
TPP: How do you break into these regions and change attitudes to banking?
ML: In the Czech Republic and many other countries in this region, credit cards are minimal or nonexistent to some extent. They’ve always been highly cash-dominated cultures. Some of it is just about understanding that prepaid cards and debit cards are fundamentally the same thing: One has a bank account; one doesn’t. So I think some of it is education and some of it is an evolution of just where the financial sector is in these markets.
TPP: Why do you think there is such a large proportion of under-banked consumers here?
ML: People don’t have bank accounts for a variety of reasons. One can be because they choose not to, because they’re not comfortable with that bank. Another one is about financial inclusion. Many people, when they open a bank account, have to be fully KYC (Know Your Customer). You have to be able to show some form of government ID that has your picture on it, and you have to have proof of residence, showing you live at that location through a utility bill or something like that. Many people who are immigrants to a country, who are maybe renting a room in someone’s house, don’t have the ability to fully KYC themselves. Prepaid gives the ability for people to become established.
TPP: Who are you targeting with this product? Does it fit well with younger consumers who don’t qualify for a credit card?
ML: It’s completely mass market. Certainly youth is one segment, but it’s not the predominant segment. The largest protocols in the prepaid space are what we call General Purpose Reloadable (GPR) cards, which can be used for everyday purchases. They may not have a specific use other than you can buy it and you can reload it. But what we are finding is that people who buy these GPR cards are using them predominantly online.
TPP: How do you sell the concept of prepaid cards?
ML: Right now, it’s a matter of getting people to understand what the product really is, and what the opportunities are with the product. It’s a highly flexible product, so it can do anything you want it to do. People see the flexibility as complexity. In reality, it’s a very simple product. What I see, especially in the banking sector, is that people want to put it in the same category as a debit card or a credit card. Prepaid cards are more like a consumer package to go. They are for people who say, “I want to shop more securely online, and I don’t want to use my credit or debit card.” So you have to clearly position it to the consumer that this prepaid card can be used online. You market it as an E-commerce card.
TPP: What are the main advantages then?
ML: From a security perspective you can budget and you can control. If you think about a credit card, you can get yourself into debt. You can’t get yourself into debt with a prepaid card. Yes, a debit card and prepaid card work identically, but the debit card is attached to your bank account, so if it ever gets compromised, it potentially compromises your entire account. The budgeting aspect is that you can move money out of your bank account and put it onto your prepaid card. It can be used for your weekly shopping, your child’s allowance or your holiday. For example, you can buy foreign currency and load it onto a prepaid travel card.
TPP: Do you feel the lack of bank links can create problems with fraud?
ML: There are different classifications of prepaid card. The ones with the perceived higher risk, meaning, for example, an anonymous product where you don’t know who the person is, have restrictions on the maximum amount of load for the lifetime of the card. It’s a very small amount, and you can’t use it to get cash. Money laundering is about getting cash from point A to point B, but the card’s not useable once you’ve spent the money off the card, and you can only spend that money at a point of sale. So from an anonymous perspective, that has a very low money-laundering risk because you have eliminated all those points that money launderers can try to steal or launder money.
TPP: How much of a role does technology play in all of this, specifically mobile phones?
ML: Prepaid is really helping to enable the new technologies. You look at a bank and they’ve got their core accounting platforms and their card management systems. For them to change that takes a lot of time and money. But they can deploy a product on a prepaid card more quickly because it doesn’t touch their accounting or core banking data. Some of them can get things deployed within less than six months. For mobiles, an antenna is built into the phone’s case. There’s an application that comes with the prepaid card, which I use to register myself, and then I load money onto it. So now I can take my mobile phone to a store that’s prepaid-enabled, and I can swipe my phone to make a payment.
TPP: Can you justify some of the large fees that are connected to prepaid cards?
ML: Our research has shown that consumers, when they look at the value of a product, are willing to pay for that convenience. A lot of criticism I hear is, “Debit cards are free; why should I have to pay for my prepaid card?” Banking is not free. Your back-end bank account is not free; you’re paying for that. A prepaid card doesn’t have a back-end account that can subsidize the cost of that card, so I need to make sure the value I’m delivering to that consumer is good enough. Yes, prepaid cards have fees, but they are typically in line with the value that’s being delivered.
TPP: What are the long-term goals? Is a cashless society in the next five years a realistic aim?
ML: I don’t think we’re going to get to a cashless society by 2017, and I think we have to be really careful when we talk about that. What does it really mean? Today, personal consumer expenditure – what people pay – is 85 percent cash, 15 percent other means (debit card, credit card, prepaid card, etc.). There’s always going to be some environment, in remote locations such as the middle of a field, where the technology is just not feasible. Our view of a cashless society is where that statistic is reversed.
The Lanford file
Title: Senior business leader and head of Prepaid Europe, MasterCard
Education: Computer science degree from University of Arkansas at Little Rock
Previous positions: Product developer, ARYSYS; ATM operations manager for Europe, Euronet Worldwide; director, Citigroup Corporate Investment Bank Global Transaction Services