Prepaid Revolution part 1: Pandemic at the barricades

Q. What is a mobile wallet?

A. It’s a prepaid debit card with glass not plastic.

Q. What is a low cost bank account and payment system?

A. It’s a prepaid account with both plastic and glass form factors for payment.

The logic of this has been known for a while. Prepaid accounts are technically simple and totally revolutionary. Now with pandemic at the barricades, serious change is coming. The driver for change is merchant desire for cashless payment. As consumers we all got used to making large purchases on credit cards and small ones with paper notes and coins. Merchants did not want credit card fees for purchases below about $10. Now merchants are even more focussed on avoiding catching Covid from paper notes and coins. Fortunately many of us now have prepaid cards. That is why we can expect prepaid accounts and cards to boom. 

Prepaid Debit Cards 101

Prepaid Cards are different to Credit Cards. To a consumer they look similar. A Prepaid Card is plastic in your leather wallet or an app on your mobile wallet that you use to make payments, with familiar logos such as MasterCard,  Visa, American Express, Discover. There is one difference – you are spending money that you have already loaded onto the account/card; you are not borrowing money. It is like spending cash in your wallet – no interest rates or fees but if you don’t have enough cash you cannot make the purchase.

Prepaid Accounts are also different to traditional bank accounts . You are spending money you “loaded onto the card” (like going to the ATM in ye olden days).There is no credit. That means no credit card interest rates or overdraft charges. It also means that if you are out of cash you have nothing to spend.

To a merchant, prepaid debit cards look the same as credit cards – instant payment. There is one difference for merchants – lower fees per transaction.

That familiarity for consumers and merchants is why market acceptance of prepaid debit cards is happening so fast. However those changes have profound implications for all the players in this game, which is why we call this the PrePaid Revolution.

Stay tuned. Next week we look at the 6 types players in this game and where the puck is headed.

Bernard Lunn is Editor and CEO of Daily Fintech and author of The Blockchain Economy

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