Deutsche Bank latest to join prepaid card revolution
Deutsche Bank has become the latest global bank to enter the fast-growing market for prepaid corporate cards, which was estimated to be worth close to $80 billion in the US alone last year.
The German bank has launched DB corporate prepaid card, developed in conjunction with Cards Prepaid Ltd, for its corporate clients in the European Economic Area to use globally.
The prepaid or prefunded debit card, which can be used wherever MasterCard is accepted, provides the bank’s clients with an alternative payment method to cash, cheques and vouchers, and can be used for in-store and online purchases.
Whereas prepaid cards were once heralded as a solution for unbanked people, they are being seen as a mainstream payment method with applications for corporations as well as consumers. US-based retailer Wal-Mart and fast-food chain McDonald’s, for example, are using prepaid cards to pay some of their employees, and more are set to follow suit, say bankers.
“In the US, we have seen corporations primarily adopt prepaid cards for payroll purposes,” says Kevin Phalen, head of global card and comprehensive payables at Bank of America Merrill Lynch (BAML). “They are offering them to employees who do not participate in direct deposit, and who were previously receiving check payments.”
Outside the US, Phalen adds that corporations are primarily using prepaid cards for travel purposes.
According to Visa, prepaid cards are Visa Europe’s fastest-growing product category, with more than nine million prepaid cards in Italy alone. Meanwhile, a study commissioned last year by MasterCard found that European open-loop prepaid business travel spending is set to reach $400 million per year by 2017.
“Prepaid provides tremendous flexibility and applicability within businesses,” says Andrew Reid, co-head of cash management, corporates, EMEA at Deutsche Bank.
He adds that applications for this type of card include payroll cards for unbanked or seasonal workers, travel cards for travel-related expenses, customer rebates and compensation for travellers. Prepaid cards can also be used as a replacement for petty cash and for distributing employee incentives.
|Matthew Lanford, head of prepaid Europe at MasterCard|
Matthew Lanford, head of prepaid Europe at MasterCard, says more recent applications for this type of solution include virtual prepaid-card programmes in which no physical card is issued.
“We see this especially in the travel space where aggregators who will buy hotel rooms or airline tickets take payment from consumers and make the purchase using a prepaid card,” he says.
Lanford adds that other applications that are attractive include non-reloadable prepaid cards for insurance-claim payments as an alternative to issuing cheques.
Companies that have a more traditional card programme in place might question the value of this type of solution, but prepaid cards offer a number of advantages over other corporate cards.
“One is flexibility and control,” says Lanford. “Prepaid cards give corporates the ability to control more of the programme and load and unload cards as needed. They also limit the company’s liability when a seasonal worker or consultant is required to spend on behalf of the company, because that individual can only spend the amount of money that has been loaded on the card.”
This value can be removed as well as added. For example, company employees can be issued with prepaid cards to cover costs on foreign trips, and then the company can unload funds from the card upon the employee’s return.
A further benefit is the ability to manage a single data feed. “At the controllership level, prepaid provides a broad opportunity for the company to manage information across the business, rather than having to segment and bring together different pools of data relating to a variety of payment instruments,” says Deutsche’s Reid.
This type of solution might be attracting substantial interest from banks and corporations alike, but there are still some obstacles to overcome.
Lanford argues that one of these issues is a gap in understanding and knowledge of this type of solution. In addition, where traditional credit-card programmes are run by the banks, prepaid programmes are managed by the corporate and as such they might need a middleware application to do so effectively.
BAML’s Phalen says companies might need to make changes to their administrative processes and technology platforms to move from cheque or cash payments to prepaid cards.
“For instance, companies might be managing their current processes via multiple regional offices or remote locations rather than a central site,” says Phalen. “As a result, transitioning to a centrally managed programme – which a card programme typically is – could involve training of employees, and changing certain administrative processes.”
Another challenge is the fact that prepaid cards lend themselves to companies that are looking to establish relatively small prepaid programmes.
“Company A may be looking for a programme with just a couple of cards, so larger banks may be challenged to provide this if they are more focused on a 50,000 card programme,” says MasterCard’s Lanford. “So banks may have to work on an aggregation model to achieve economies of scale.”
Nevertheless, the obstacles are not insurmountable and this is widely viewed as a growth solution with a wide range of applications. Reid says prepaid cards will only increase in importance.
“Increasingly in corporate businesses, everyone is looking at opportunities to improve controls, reduce risks, decrease operational costs and leverage opportunities relating to negotiations with suppliers,” says Reid. “Cards and card-related solutions are enablers towards these ends.”