Article

The underbanked: embracing the prepaid phenomenon

As the underbanked increasingly choose prepaids for their money management needs, new opportunities arise for the ATM industry.

January 31, 2013

By Mark D. Smith, Kahuna ATM solutions

An interesting pattern has emerged since banks and credit unions began offering prepaid card services to the underbanked community. The majority of customers participating in these programs have chosen to remain underbanked; they did not become fully banked customers as many financial institutions had predicted. Instead of converting to standard banking services, many of the recipients remained satisfied with this type of prepaid program.

The underbanked community can be defined as those who use a bank for limited services, but don’t have an account, or don't engage with other traditional banking programs. You may have noticed that the largest financial institutions have begun offering prepaid services to this group, and advertising this fact aggressively.

Chase has a program called Liquid; Bank of America has CashPay; Wells Fargo offers a Prepaid Card Program; and Regions Bank has the NOW program. These prepaid programs include check cashing, money transfer and bill payment services, plus a general purpose reloadable branded prepaid card. These cards are generally branded by Visa or MasterCard, which assures a high level of trust and participation in the card program.

These programs offer their users payment flexibility and the numbers of customers enjoying this alternative financial services are growing fast. There could be numerous reasons for this, but perhaps the most important is that these products offer many in our communities a convenient means to manage and access their money.

Financial institutions are now building a strategy to manage these customers effectively and keep them using prepaid services. They are installing lobby ATMs inside branch locations and are also placing them in high traffic locations for community access.

Eventually, deployments will migrate to retail locations, which can benefit from automated services. This vertical market certainly warrants consideration. And these new products could well find their way to locations where you currently provide service.

This is a new and different type of product and program for dealers to begin providing to their financial institution customers. As both an on-premise and off-premise product, it can broaden your services to a variety of business locations. And it can benefit a number of groups:

• Dealers will enjoy products that offer multiple revenue streams, ample locations for deployment, and a valuable service for the underbanked.
• Service providers will gain a new fleet of products to manage for their clients. The number of service contracts will increase, technicians will gain a new skill set, and you’ll be able to promote your organization as a turnkey partner.
• Manufacturers of vaults and security products will be asked to design these devices to be used in outdoor environments. Security requirements will be increased and a market for spare parts, accessories and options will develop. Manufacturers and software developers will have fertile ground to work as they develop new products and services for this vibrant industry.
• Ultimately, banks and credit unions will have more financial programs to offer their communities, which will boost their revenue and increase customer loyalty.
• Finally, the underbanked will gain full access to ATMs, gas pumps and point of sale devices, and will be able to use their cards at kiosks to effectively manage their funds.

Everybody wins.

ATM Marketplace is pleased to introduce new blogger Mark D. Smith, vice president of financial solutions at Kahuna ATM solutions, a provider of ATM solutions for ISOs and operators, financial institutions, VARs and retailers. Mark manages the Kahuna value added resellers channel and provides direct sales support to financial institutions. His blog will focus on ATM issues and opportunities in the banking channel.