Prepaid, the steppingstone to a new economy.
Prepaid cards have come a long way since their dark days many years ago. Once frowned upon, prepaid products are today used to underpin some of the slickest payment solutions and greatest user experiences. Short of becoming a true revolution, the prepaid industry is nevertheless paving the silent path to a completely new way to earn and to a new economy.
Prepaid has evolved
I remember delivering the first French one-time usage virtual card in 2002 and, even though it provided a much needed security improvement, the adoption of this product back then was quite low. Prepaid cards were seen as the ‘poor man’s’ card, mostly used as a cheaper alternative to traditional banking. Prepaid products lacked in user focus and innovation, and it was extremely expensive to launch and run such a programme, making it difficult for new competition to enter.
Over the last 10 years, things have changed dramatically. The whole financial space has evolved and become commoditised. The cost of technology has drastically reduced too, making it cheaper and easier to deliver new financial products.
With that barrier to entry lowered, the financial sphere has seen a high level of new entrants, driving innovation forward at fast pace. Far from the 5 days it was sometimes taking to move money between accounts, users are now used to near real-time money movement – although it is often still a perception as actual settlement can take longer to come through.
We now live in a world where the choice of financial products is abundant and where the way we are consuming financial services is up to us. We are no longer choosing a bank at 16 or 18 of age to stick with for life, using it for any and all financial services we need. Consumers choose different providers for credit, loans, income account, general expense account, travel, etc…
The growth in prepaid is interesting but is only a part of the overall payment industry. Let’s think about where payments are heading for the wider economy, and how the change in behaviour is only just beginning…
The economy has evolved
A similar evolution and choice of providers has taken place in another area: employment.
Whilst older generations were used to having an employer for life, progressing through the ranks until retirement, this is no longer the case. My generation (I was born in 1979) tend to change employer every 3 to 5 years and newer generations are being even more ruthless, sometimes having a multitude of ‘employers’ at any given time. The gig economy was born.
This change of habit in how we earn money is about to drive a change in the payment industry as employers are being forced to support a new way of paying their staff, ie: by the job, by the hour, by the task.
This consumption is a simple consequence of an ‘on-demand’ mindset our children are growing up with. Taking my 3 year old son as an example, he quickly understood that, should he want something, daddy and mummy could simply buy it online and the postman would bring it to him the next day. For a movie, music or any other digital product, the wait time is even drastically reduced and having to wait a few seconds when the internet connection slows down is becoming a nearly unacceptable nuisance.
We grew up having to wait before receiving mail orders, having to wait until we could go to a specific shop, having to wait a week for our next tv-series episode, having to tune in on the right day at the right time to watch the TV show we wanted. Today, we have 24 hour delivery time, music/video on-demand and binge TV watching.
Slowly, everything is becoming available, right now, whenever we want it. For a small number of the population within the gig economy, this is also becoming true of employment. Newer generations are ‘consuming’ jobs, picking from large pools of gigs and choosing where, when and how to work. Yet, payment options to support that are still rarely available and are fairly clunky.
As the expectation to get paid ‘on demand’ increases, employers will have no choice but to adapt. A challenge arising from this small job consumption, and which is driving payment innovation, is trust. This type of arrangement doesn’t enable the trust rapport that exists between a company and a full-time employee. Often, gig workers are wary of being paid on time and accurately (or being paid at all) and companies are wary of the job being done to their satisfaction.
Some companies are already evolving to a ‘per job’ payment, where the worker can receive his/her pay in near real-time once a job is completed and based on a series of criteria. However, this isn’t widely used and remains in its infancy.
In order to support the upcoming gig economy, and the consumer demand for instant availability, one innovation is needed: Money streaming.
In the same way as we are streaming music or video today, tomorrow we will need to be able to stream income (or payment from a company point of view) to support the continuous growth of the on-demand model. Companies will define the criteria for the streaming to start/stop, as well as the amounts being pushed, and workers will be able to get the reassurance they are getting paid fairly.
It’s not only for the gig economy
The concept isn’t new. Payment on demand is as old as the internet (at least) and is one of the initial drivers behind initiatives such as Bitcoin. 20 years ago, as the last internet bubble crashed and internet companies struggled to generate income, some companies tried to implement pay per view content. News websites tried to charge per article, for example; however, this isn’t how we are consuming. We don’t want to pay for an article when we are only going to read the first paragraph (even if it’s only a few pennies) and, in some cases, even 1p is too expensive for the content.
The micro payment concept was introduced to be able to pay a website for every minute a user would be viewing it, but this didn’t take off, mostly because of 2 reasons: (1) the 1p minimum denomination was often a barrier and (2) payment options were not available to support the model.
With cryptocurrencies, mostly Bitcoin, the fractional payment issue has been resolved and payment technologies are now ripe to support a streaming model.
The smallest Bitcoin denomination is 0.00000001 which, as of 06/01/2021, is worth GBP 0.00024. This is small enough to be able to charge a fraction of a penny for every second spent browsing a website.
If every piece of internet content was generating true direct revenue, this would help drive quality but would also solve the major headache some digital companies are trying to address, ie: getting paid. Currently their only choice is to provide free content, bombard us with ads and encourage us into chunky payments once we get accustomed to their services. But this isn’t the way newer generations consume.
Digital companies, especially news companies, are facing difficulties as it will become increasingly difficult to get paid subscriptions. We can already see the subscription model declining as it is not always in the consumer’s interest.
Users are consuming content regardless of its source and delivery platform and paying a subscription to one specific provider isn’t advantageous when you might be using other providers too at other times.
Using myself as an example, my household consumes a high quantity of tv-shows. We had a subscription to Netflix, Amazon Prime, Now.TV and Disney+. I thought it was becoming a little too much and, realising we were not using Now.TV as often as the others, I cancelled it. But this isn’t in my interest nor in the interest of Now.TV. The best thing to do would have been to keep the subscription, but to only pay when I was using it.
This would all be possible with fractional money streaming.
By now, you might be wondering why I mentioned prepaid specifically.
One issue remaining today is speed of settlement and credit risk. The streaming model cannot work without the ability to move funds faster but, more importantly, without the total assurance that the money will be received.
In this honeybee consuming approach where the consumer loyalty is becoming sparser, it is critical for the provider to be 100% sure the user has funds available and will pay. This is obviously feasible using a lot of different mechanisms, but prepaid is inherently the perfect mechanism.
As funds must be deposited and available before making any purchase, streaming money from or to a prepaid product removes that credit risk altogether, providing the merchant with piece of mind when delivering content. The accessibility of prepaid products, and additional level of features and control they provide (such as allowing the user to fine tune their spend limits, on a per provider basis if needs be) is also key to making a streaming scenario work well for all parties.
The last 20 years have seen the digitalisation of many products and the streaming revolution with music and movies. The on-demand concept is fast becoming more anchored into our daily lives and is driving rapid changes in the way we’re consuming. The next 10 years will see an equally disruptive change for the way money moves and is being consumed. Our children will be used to streaming money. The question is … will they be streaming fiat or crypto currencies?