Ask the expert: Pre-paid value

When discussing the value proposition for pre-paid cards, there are two ways financial service institutions can evaluate these programs. The first is to view the program and the financial performance as a standalone entity. The second is to view the pre-paid card program as a component of an overall organizational goal. This view is more complex to quantify, but is a truer picture of the impact pre-paid programs have on the organization.

The financial value proposition

At the core of a pre-paid card program is a product that is similar to credit and debit cards. When evaluating the P&L of a pre-paid card program many of the costs will be the same as a debit card program. These include processing costs, materials costs and network and associations fees. There will also be potential costs that are unique to pre-paid programs that must be considered. Examples include regulatory and reporting issues that must be understood, new risk strategies that need to be developed and managed, and the need for different processing solutions to deliver the unique functionality needed for a pre-paid program. Depending on your organization’s capabilities, these costs could have a significant impact on the cost structure of a program.

On the positive side of the ledger, there are also the same revenue components of a debit card program, plus additional revenue streams unique to pre-paid. The components that carry over are transaction fee income, such as ATM fees, plus network and association interchange. In addition, pre-paid programs have additional fee income potential from new fees such as card acquisition fees, monthly maintenance fees, dormancy fees, overdraft fees, and usage fees. While many of these fees would not be acceptable on a debit card program, depending on the type of pre-paid card, some or many of these additional fees are common and drive revenue. Typical monthly fees vary from $2.00 to $9.95 with an ATM fee from $0.50 to $2.50 per transaction on many reloadable pre-paid programs.

Organizational goals

The true power of the pre-paid card program goes well beyond the financial impact it can deliver to the organization. The true value potential for pre-paid card programs is tied to the ability for the program to help execute organizational goals, such as greater efficiency, enhanced customer experience, motivating and rewarding employees, and increasing customer profitability. Pre-paid card programs can be used to support your organizational goals both internally focused and externally for you customers.

For example, a regional bank had an administrative nightmare ensuring that all of its employees completed required security training. The bank created a program that gave a $20 custom designed pre-paid card that reinforced the security message to each employee that successfully completed the training. The effort was so successful the bank plans to use the program every year. Employee incentives such as this can be used across many areas from sales, to employee retention, to safety and service reward programs.

In another case a small commercial bank’s branches were experiencing a capacity issue every Friday. Many of its large commercial clients pay their employees on Fridays and the branch lobbies were filled with non-account holders cashing their payroll checks. The solution was a re-loadable payroll card issued to each employee that pay was direct deposited onto. This eliminated the lines in the branches as the cardholder could the card to make purchases directly or use an ATM to withdraw cash. This program not only solved the branch issue but also is now a new revenue generating product for the bank.

These are a few examples of how the value proposition of pre-paid card programs goes beyond the P&L of the program itself. These programs can be used to deliver exceptional results both internally to the financial services organization as well as it the organization’s clients.

Whether it’s purely the positive P&L impact of the program or the opportunity to drive internal organizational improvement, or strengthen your customer relationships through compelling product offerings. Pre-paid programs provide a tangible and quantifiable value to the organization.

Gary Erdmann is Managing Director Prepaid Solutions. He can be contacted at gerdmann@westsuburbanbank.com.