The Rise of the Virtual Prepaid Market

The Canadian payments market, reflecting trends seen globally, has embraced one buzzword that has defined payments innovation in a COVID-era: Acceleration

As a surge in online activities paved the way for a robust digital economy, it was clear the virtual prepaid card market was ready to ignite. Prepaid’s cost-effective, low-regulatory burden tech stack created an instant appeal for payment solution providers looking to move faster. Pandemic-induced challenges further propelled the need to move away from traditional analog payments to more robust virtual payment offerings. 

The prepaid industry has already been positioning itself to expand far beyond GPR and gift cards. The payments ecosystem is increasingly adopting prepaid as an infrastructure fueling digital banking and payments as a service. Virtual prepaid card platforms are now laying the groundwork for what the future of a digitally-driven payments ecosystem looks like.

How Virtual Issuance Brings Prepaid into the Spotlight

The rise of the virtual prepaid market is gaining momentum alongside the rise in online shopping habits. Holiday shopping season trends alone pointed toward the need for offering diverse digital and virtual payment options that enable better, safer online shopping experiences for a greater number of consumers. 

Data cited in eMarketer from daVinci Payments and the Canadian Prepaid Providers Organization indicated that a majority of consumers planned to do their holiday shopping online, and 40% of that figure would make a majority of those purchases using a mobile device. It’s clear the race is on to deliver digital payments solutions that enable those online shopping experiences. Prepaid is part of those conversations.

Following online and mobile shopping trends, payments services providers are flocking toward launching their own virtual prepaid cards. Blackhawk Network, for example, launched a Canadian virtual prepaid Mastercard recently, pitched as “delivering consumers fast, flexible digital rewards and incentives.” Cards like these are unifying physical and digital payments by serving the best of both worlds: instant gratification and the ability to use a physical card when needed.

"For Canadian businesses that manage incentives programs, offering virtual rewards like our new virtual prepaid MasterCard can provide a strategic advantage,” said Chris Jones, VP, Digital Services and Incentives at Blackhawk Network. 

“People want to enjoy their rewards and they want to redeem them via the shopping channels they use most often—virtual rewards satisfy both of these preferences. They can also be ordered, delivered and redeemed quickly, which provides reinforcement for the behaviour that led to the reward in the first place and helps drive future desired behaviours,” he continued. 

Leveraging virtual prepaid cards has also been touted as a method to achieve multiple goals that speaks to a core value of customers today: contactless access. The ability to provide instant gratification and access to prepaid cards using electronic contactless payments is a storyline that’s gaining attention in 2021.

Credentialing Prepaid in the Digital Payments Market

Prepaid isn’t just being used today as an alternative to a bank account, or a way to reach the financially underserved. Advancements across the digital payments landscape has allowed the prepaid market to become deeply embedded as a digital banking tool to consumers and businesses looking for digital payment alternatives that doesn’t involve linking a credit card.

GPR prepaid and prepaid cards serve a valuable role in the payroll market today in Canada, particularly for businesses that need to ensure they are paying employees or gig workers in a secure, efficient manner. Prepaid payroll cards, for example, are beginning to bust the myth about prepaid’s limited functionality. Neobanks in Canada have embraced prepaid card products as a way to better compete in the payments-as-a-service market.

Prepaid has been quickly making its name in the digital payments space with companies like Mogo, which launched the digital spending account, MogoSpend, that comes with a prepaid card, in July 2020. As challenger banks find ways to innovate prepaid through digital payment options, prepaid will continue to make a name for itself as a payment option that payment providers must include in their suite of offerings to meet customer and business demand. 

The prepaid market has quickly risen among leaders of the “just-in-time payment” market that offers payment options to customers who seek virtual payment or payout outside the traditional credit card offering. The cost-efficient method of issuing a virtual prepaid payment experience adds to the value.

Use cases for virtual prepaid card issuance are being discovered for a number of scenarios. Businesses needing to overhaul their payroll and gig worker payout solutions, and insurance payments for accidents are just two getting more attention. While the value of physical prepaid cards have already served their role in those use cases, virtual issuance becomes an easier integration to digital payment companies that are already connected to their customers via apps that can be linked to mobile wallets. 

Virtual prepaid cards allow for one-off payments and ongoing transactions. The versatility, enhanced security and ability to reach more consumers adds extra value. Virtual cards also allow users to receive funds and pay without the same security risks associated with traditional credit cards that face more compliance challenges. Virtual prepaid cards also provide for a secure way to transact online without being linked to a bank account. From a consumer, business and regulatory perspective, this gives virtual prepaid cards an edge. 

The rise of the virtual prepaid market has also been driven by a desire for smoother digital payment experiences through more diverse payment methods. The ability to be linked to mobile apps and wallets gives consumers the same user experience as a virtual credit card, but with the prepaid payment control that allows more populations of users to partake. Virtual prepaid cards enable faster payments and payouts, and some virtual cards even offer multiple currency payments.

Prepaid’s ability to make its mark in the instant payments and payouts market — through virtual options — is where the real use cases exist for both B2B and B2C payment environments. Virtual issuance of those cards via a mobile wallet or app creates an ideal synergy for advancing the credentialing of prepaid as a key player in accelerating digital payments adoption across Canada.

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