Upload
nancy-elsworth
View
218
Download
0
Tags:
Embed Size (px)
Citation preview
Prepaid CardsPrepaid CardsGeneral OverviewGeneral Overview
PDNB Electronic Banking SolutionsPDNB Electronic Banking Solutions
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Agenda
What are Prepaid Cards?
Market Potential for Prepaid Cards
Types of Prepaid Cards
Types of Prepaid Programs
Revenue Sources and Expenses
PDNB Sponsorship Fees
Prepaid Card Risk Factors
Prepaid Risk by Program Type
Risk Mitigation
Contact Us
Also known as Stored Value Cards
Prepaid product cards are similar to debit or ATM cards
Magnetic stripe card linked to a single transaction account
•Not linked to a demand deposit account (DDA)
•Value not kept on card, but on host system
Transaction authorization and settlement are the same as current debit/ATM cards
What are Prepaid Cards?
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Consumers currently carry 6.2 million prepaid cards.
That number is expected to grow to 40 Million by 2007.
Current balances on prepaid cards exceed $38 billion.
Balances expected to grow to over $80 billion by 2007.
Growth in transaction volume, 2000-2007:•Credit Cards: +33%•Prepaid Debit Cards: +175%
[Source: Pelorus Group]
Market Potential for Prepaid Cards
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Prepaid Cards(Stored Value Cards)
On-Line Card(Open Loop)
Off-Line Card(Open Loop)
Private Label(Closed Loop)
PIN Based
POS/ATM
Debit Networks STAR, Plus, Pulse, NYCE
100% Authorization
Signature Based
“Accepted Everywhere”
Visa or MasterCard Logo
PIN or Signature not always required
ProprietaryLimited Use
No Network or CardScheme Marks
100% Authorization“Off-line Authorizations”May be under floor limits
Types of Prepaid Cards
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Types of Prepaid Programs
Payroll Cards
Sales Incentive Card
Government Programs
Campus Cards
Health Care Cards
Gift Cards
Money Transfer Cards
Shopper’s Card/Mall Card
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
• Cardholder Fees help to recoup processing costs– Lost/stolen card– Paper statement– Live operator assisted calls– Monthly maintenance fees
• Revenue sharing opportunities with PDNB– Interchange– Balances on deposit
Revenue Sources and Expenses
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Revenue Sources
Expenses• Processing Costs
– Card production– Transaction clearing and settlement– Cardholder services
• Network Fees– Program registration fees
Pricing varies by risk profile and size of program
Fees can be structured several ways:•Set-up fee of $5,000/program•Per transaction fee—ATM, POS, Signature Purchase, Load•Per card fee—for each newly issued or reissued card•Monthly card maintenance fee—per card, per month
Opportunities for Revenue Sharing:•Interchange •Percentage of the balances on deposit with the bank
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
PDNB Sponsorship Fees
Funding or Load Fraud: •Funding cards from fraudulent sources (e.g., stolen credit cards)•Risk on consumer loaded cards, especially gift cards: average 17 basis points
[Source: Visa Prepaid Risk Forum]
Transaction Fraud/Loss: •Overlimits—spending more than is on the card (e.g., pay-at-the-pump)•“Under Floor Limit” purchases—particular risk in non-U.S. locations•Signature based cards: average 2-7 bps [Source: Visa Prepaid Risk Forum]
Regulatory Risk•Federal and state regulations still in flux, often contradictory•Network regulations govern card design, program organization and performance•Additional regulations for some programs (e.g., health care cards)
Reputation Risk•Loss of business’ or bank’s good name if excessive problems or fraud on cards•Certain program types frowned upon by networks and regulators (e.g., payday loans, Internet gambling, multilevel marketing)
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Prepaid Card Risks
Prepaid Cards(Stored Value Cards)
High Risk Moderate Risk Low Risk
Signature Based
Consumer Loaded
Non-Personalized
PIN Based
Corporate Loaded
Personalized
Private LabelOr Closed Loop
Limited use locations
100% Authorization
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Prepaid Card Risk Factors
Reputation Risk
Regulatory Risk
Transaction Fraud/Loss Risk
Funding Fraud Risk
•Health Care
•Payroll
•Shopper’s Card
•Government
•Sales Incentive
•Shopper’s Card
•Government Card
•Health Care Card
•Shopper’s Card
•Payroll
•Incentive
•Health Care
•Government
Low Risk
•Gift Card
•Campus Card
•Sales Incentive
•Government Card
•Campus Card
•Payroll•Campus Card
•Shopper’s Card
Moderate Risk
•Money Transfer•Gift Card
•Payroll
•Health Care Card
•Money Transfer
•Gift Card
•Money Transfer
•Sales Incentive
•Campus Card
•Gift Card
•Money Transfer
High Risk
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Risk Schema by Program Type
PDNB prepaid card insurance•Strict liability, “no fault” coverage on all transactions
Careful choice of program parameters •Signature vs. PIN based card•Load and transaction limits on card•Proper level of information on cardholders relative to program type
Thorough due diligence on all partners
Contracts that properly assign liability
Regular monitoring of processor reports and account balances
Complete and documented policies and procedures
Ongoing fraud monitoring on cards
Compliance with cardholder data security regulations
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Risk Mitigation
Confidential and proprietary ©2005 PDNB Electronic Banking Solutions ™
Contact Us
PDNB Electronic Banking Solutions
Jim Tingey, Senior Vice President
(760) 340-9693 phone/fax
Liz Nutting, Assistant Vice President
(760) 674-1443 phone/fax