Report: Prepaid Cards’ Growth Will Pressure Money-Transfer Nets

With banks issuing or planning to issue more and more prepaid debit cards to handle remittances overseas, more banks are expected to enter the market, putting pressure on the established money-transfer businesses like Western Union Holdings Inc., a new research report concludes. According to the report, entitled “Money Transfer Cards & the Accidental Global Customer” and published by The Aite Group, a Boston research firm, there will be 1.7 million active money-transfer cards issued by U.S. players by 2007, up from 400,000 this year. The cards will command 4.4% of the total value of outbound remittances two years from now, an increase from their current 0.7% share. Remittances of all kinds will total $70 billion in 2005, a number the report says will grow to $80 billion by 2007. “Major US banks and a number of non-bank marketers are moving ahead with plans to issue millions of prepaid debit cards for money transfers over the next 2-3 years,” says the report, authored by Gwenn Bezard, Aite's chief researcher and author of a major study of this market published in January (Digital Transactions News, Feb. 7). “Although many of these plans will likely fail, we believe a few programs will start winning meaningful market share in a short period of time…money transfer cards will start having an impact on the remittance market by 2007.” Bezard concludes the cards' rapid growth will pressure established players like Western Union and MoneyGram International Inc. to seek new markets, such as walk-in bill payments and cash-based e-commerce. This is in part because the cards, most often branded with either Visa or MasterCard, are aimed at the same consumer as are the services of the money-transmittal business. “Banks and non-banks we surveyed report that their analysis suggests the customers they win over [with cards] are Western Union and MoneyGram's core customers,” the study reports. Banks have been attracted to money-transfer cards as a way to gain incremental business, since most takers are previously unbanked customers. “Unlike most other prepaid card products (e.g, gift cards, teen cards, payroll cards), the money transfer card has proven a valuable tool for bank customer acquisition,” says researcher Bezard in the report. Recent entrants in the market include HSBC Holdings PLC (June) and Wachovia Corp. (April). Bank of America Corp. and Citigroup Inc. have been in the market for three years. At first glance, says the report, the ability of these banks to compete with Western Union (a unit of transaction-processing giant First Data Corp.) and Moneygram may seem hampered by the relative paucity of ATMs in most foreign destination markets. Of the top 10 recipient countries of workers' remittances, Brazil has the highest ATM density, at 750 machines per million inhabitants (compared to 1,295 in US). Mexico is a distant second at 186. But many of these countries still have more ATMs than they have Western Union offices, the report says, leaving the established players with no advantage in locations. “Although Visa and MasterCard cards would likely be sufficient to fully penetrate the countries the most underserved by ATMs, the possibility found by some new entrants to enter these markets using these cards means no Western Union or MoneyGram corridor is safe,” the report says. Bezard figures banks will soon press for improved ATM service overseas to support their growing franchise. “The most aggressive money transfer card issuers will pursue global ATM network alliances to overcome ATM surcharges, withdrawal caps, lack of inter-connectivity, and other issues,” he writes.