Consolidation and Uncertainty: 2017 is off to a bumpy start for Prepaid

2017 has started off as a year of consolidation and uncertainty for the Prepaid/Stored Value industry. And it may just be the beginning of a very interesting era for payments in general.

Trump campaigned on deregulation and he has already signed an executive order that instructs agencies that whenever they introduce a regulation, they must first abolish two others. While you may herald the concept the execution could add to even more uncertainty. Which regulation will be cut? While the new regulation be more onerous that ones eliminated? How do you plan for new products or enhance existing one with this type of unknown? It is enough to drive any program manager to question the viability of their offerings.

Mercator provided the following guidance for 2017. “The prepaid industry is diverse, with products ranging from closed-loop gift cards to transit cards to open-loop government benefits cards. The new government may pass laws, regulations, and budgets that affect all of these areas. Government benefits cards may lose funding. Transit systems’ loads might either grow or fall depending on whether infrastructure spending affects mass transit for good or ill. Closed-loop apps might gain traction among people who want to put their money into products that can reward them or that seem safer than open-loop products.

While technology and innovation will continue to develop, the regulatory uncertainty that will come in the new year may make companies and investors cautious about going too far too fast. Companies will need to continue to be nimble and alert to governmental changes. They should also design with an eye for future changes. A free-for-all regulatory environment is not likely to last forever, and may not even survive the midterm elections.”

And then there is consolidation. There are several innovative new prepaid programs that have launched recently. Prepaidian is the only prepaid card issuer marketing through affinity groups. They are taking a page out of the MBNA Credit card strategy to breath new life into the industry. But it will take time to scale.

And when a program manager reaches scale, more often than not, they are gobbled up by a competitor. When Western Union exited the program management business, it transitioned it’s program to a partnership with NetSpend. Account Now was acquired by Green Dot and Rapid Payroll became a part of UniRush. Now some of those PMs are be absorbed by their competitors as well.

Green Dot recently announced a $147M acquisition of UniRush. It combines two of the oldest names in the prepaid industry under one banner. “As one of the largest and most successful FinTech banking franchises in America, Green Dot has proven its ability to efficiently integrate highly accretive acquisitions. We believe the acquisition of UniRush, LLC, including the RushCard business and the Rapid! PayCard corporate payroll card business, will be a strategic and financial success in both the near and long term,” said Steve Streit, founder and chief executive of Green Dot.

What are your thoughts on the trends? Will the industry be stronger with these changes? Only time will tell.