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May 31, 2016


What Is GPR Feeding On? Part 1 of 2

I recently gave a presentation titled "Where We Are Going, We Won't Need Checking Accounts" at the NACHA Payments Conference in Phoenix. This session focused on the increasing use of alternative financial accounts such as general purpose reloadable (GPR) cards in place of traditional bank accounts. After the presentation, I overheard an attendee comment, "I don't even understand why a product like prepaid exists, when the majority of its use is attributed to those seeking anonymity to conduct fraud." While I will cover common prepaid fraud schemes in the next installment, first I think it is important to consider why prepaid products like the GPR card deserves a seat at the payments table.

I'll start with an egalitarian comparison. Consumers have the right to choose a leather or Velcro wallet and then store their cash in that wallet. In today's digital world, shouldn't a consumer also have the right to acquire a GPR card, e-wallet, or other account to store money electronically? If a consumer receives or spends money illegally in any form, then the justice system should enforce the law. Funds stored in a GPR account or a demand deposit account (DDA) is e-money, a representation of cash in your wallet. The GPR card is an access device to the stored money, functioning like the beloved debit card to the DDA.

In June 2015, the Pew Charitable Trusts published Banking On Prepaid, a report of the motivations and views of prepaid card users. The study concludes that the main reasons for prepaid card use for both banked and unbanked users are to avoid overdraft fees, debt, and check cashing fees. In addition, most GPR users are attracted to the budgeting and savings tools provided by these types of accounts. The report also found that most GPR users don't aim to be anonymous: 74 percent of unbanked GPR cardholders registered their cards, and 52 percent of banked cardholders registered. The primary benefit to registering is that the cardholder gets consumer protections like limited liability and, in many cases, insurance from the Federal Deposit Insurance Corporation.

Susan Herbst-Murphy and Greg Weed, in their 2015 paper "Millennials with Money Revisited," collected data that challenges preconceptions of GPR cards as a product for low-income and unbanked customers. These researchers identify a "power user" group of young, banked, middle- to upper-income levels as well as a "hybrid" user group that combines GPR accounts with traditional bank accounts and other alternative financial services. They suggest we look to the power users to understand why and how the product is being used.

Clearly, there is a market with a strong appetite for this financial product.

Stay tuned for the next installment, when we examine the GPR market for bad apples.

Photo of Jessica Trundley By Jessica J. Trundley, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

May 31, 2016 in prepaid | Permalink

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