Protecting prepay: why the fastest growing payment card market needs securing
By Vince Graziani, CEO, IDEX Biometrics ASA
The absence of cash and the ability to manage transactions seamlessly have become key pillars in our modern payment infrastructure. Cash was already on the way out pre-pandemic; being used for less than a quarter (23%) of transactions in 2019, half the 58% of transactions it was used for a decade previous.
The global pandemic, however, accelerated the move towards a cashless society and the widespread adoption of contactless payments as retailers discouraged cash payments to help prevent the spread of the virus. As a result, prepaid cards have become one of the fastest-growing payment mechanisms – with the global market for prepaid cards estimated at US$2 trillion in the year 2020.
And it’s no wonder. Prepay cards offer a flexible and frictionless method to manage money as well as provide instant spending notifications that help users control their budget effectively. Some also come with extra benefits, such as cash-back and competitive exchange rates for overseas currencies. They also prove to be a valuable financial lifeline for the estimated two billion people around the globe who are unbanked or underbanked.
A vast market
Most prepaid payment cards use the networks of the major household-name card processors such as Discover Financial Services, Mastercard and Visa to handle transactions. The market for them is vast. Between them, the three companies had over a third of a billion (388.7 million) prepaid cards in circulation in the US alone in 2019. The value of prepaid card transactions is forecast to grow at a CAGR of 10.7% until 2027 when the global market for Prepaid Cards is projected to reach a staggering US$4.1 trillion.
If you look at the latest purchase volume statistics of the top 25 largest prepaid card issuers in the USA, some 5.74 billion purchase transactions were made last year: amounting to $198.97 billion. This equates to an average purchase volume per card of $484 – up 1.5% YOY, showing no sign of decline, even during the pandemic year. Prepaid cards are also particularly favoured by the younger generation of consumers, with seven in 10 of those under 45 years of age buying prepaid cards compared to five in 10 of those over 45.
A significant hurdle
Although there is no sign of slowdown for prepaid cards, the payment format faces a significant hurdle; a lack of personal verification that links a user to their card, which can cause fraud to be rife. This is despite high load limits and top-up amounts for cards – for example, the PayPal Prepaid Mastercard allows customers to load up to $15,000 on one prepaid card. That is a significant amount for a consumer to lose.
The ramification of fraud not only leads to monetary loss for the consumer but also leaves the card issuers at risk of reputational damage and run-ins with regulators. Therefore, payment providers must move to provide their customers with safer, protected prepaid cards that ensure financial availability for all.
The need to protect the user
There are many times that prepaid cards can be the best solution: students wanting the convenience of a credit card without the risk of running up debts; parents looking for a budgeting tool for their teenage children; previously unbanked citizens unable to get a credit card that is looking to build their credit rating; or people who have just moved to the country and have found difficulty opening a bank account. However, their convenience shouldn’t come at the expense of security.
Unfortunately, as they stand today prepaid cards are susceptible to misuse and theft. Very few of us are comfortable carrying thousands of dollars in cash around in our wallets, yet with prepay cards able to store up to $15,000 with no PIN or security, this practice is fairly common for users of prepaid services. It is, therefore, important that payment authentication becomes inbuilt in future prepaid cards to protect the user. The best way to do this is to ensure authentication happens even before a transaction is commenced to ensure that the prepaid card being used is completely, undeniably attached to the users’ identity.
Inbuilt fingerprint biometric authentication, of the kind many of us now use on our mobile phones every day, would increase security and confidence for those that use prepaid cards. Embedding a fingerprint sensor into the prepaid card delivers end-to-end encryption so that consumers not only have access to a card that cannot be subjected to fraud, even if stolen; but personal data is also protected without fear of it getting into the wrong hands.
The time is now
With the prepaid card market only growing, the onus is on card issuers and banks to protect the users of prepay cards who are relying on them as a mechanism for their day-to-day purchases. That time is now.
The move away from cash, combined with continued security concerns around the use of mobile wallets in significant segments of the population, is set to continue even when the pandemic is behind us.
Therefore, a more sustainable, safe, and timely solution is required to keep the wheels of commerce turning and support the hundreds of millions of users who rely on prepaid cards for their banking service. Fingerprint biometric payment cards are just that solution.