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Credit V.S Prepaid Payment Products in Asia’s Emerging Markets

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What is it about prepaid payment products that’s compelling enough to thwart the advances of credit in emerging markets?

Cards and Payments Asia 2014, also known as the largest and most established smart cards and payments trade event saw the future of Asia’s prepaid card market gathering a large amount of traction despite the holding fact that cash remains to be the number one payment method in Asia.

Even so, the usage of cards in Asia saw an increase in adoption rates, backed by strong economic growth, expanding middle class, and government support for initiatives in the reduction of physical currency transactions.

The cultural setting in this discussion remains to be the strongest factor in determining what prepaid payment model would best cater consumer needs in emerging markets.

For example, China’s mature market places a strong emphasis on gift cards but due to the changes in legislation in an effort to tighten legal loopholes, this would translate as a hindrance to the development of prepaid payment products.

In India, the growing middle-class together with an already well-established prepaid cards market focused on payroll and travel cards now focus efforts in sustainability.

Over the forecast period of the Philippines card market, the prepaid cards category is expected to record the highest growth at a CAGR of 15.77 per cent due to an increased adoption by the government and corporate companies. Card volume is predicted to increase from 11.2 million cards in 2013 to 20.0 million by 2017.

A common assumption made about prepaid payment products is that it is typically utilized by the “unbanked” consumer; or rather, consumers who have do not have proper and regular access to banking services, which is closely observed in emerging markets.

“The bread and butter of the prepaid market lies in moving transactions out of ATMS into POS terminals. This will in turn, drive more transactions with the prepaid card together with the implementation of strategic merchants such as petrol stations, supermarkets and convenience stores,” described Manuel G Santiago, SVP of Union Bank Philippines during the Plenary Roundtable Sessions for Day 2 of the Cards and Payments Asia 2014.

“As such, consumers are encouraged to use prepaid cards and be ‘incentivized’ based on merchant offerings such as food products and as a result, the activation rates for prepaid have increased dramatically.”

“The EON debit card product that has been developed for a decade was initially targeted towards students to initiate the use of prepaid cards with an $8 fee. That, together with their wait and see approach began to see a larger volume accumulated among the targeted market. The market dictates the lifespan in prepaid altogether. For now, almost every adolescent has an EON card in their respective wallets.

“Therefore, the prepaid payment model is largely perceived to be a profit driver in the Philippines market and depending on consumer segmentation and market absorption for prepaid, it does not necessarily reflect that prepaid exclusively serves the under-banked.”

Long story short, the prepaid payment model is relative to differing cultural perceptions and fundamentally, it’s important to realise that prepaid should be seen as a transition in terms of a country’s overall economic development and consumer segment but not necessarily an end game solution for both emerging and developed markets.

[Image: ABC News]

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