Prepaid cards face heavy regulations; opportunities open up for Bitcoin cards

Posted by paynxt360 on October 19th, 2016

United States prepaid cards segment has seen a rapid growth in recent year. However, due to rising concerns of security and consumer protection, Consumer Financial Protection Bureau (CFPB) launched final set of regulations this year that will come into effect from October 2017. The regulations have been set parallel to bank accounts and credit card regulations so that consumers get protection in terms of fee structure, loss compensation and such like. Prepaid cards are mostly popular among consumers who are not eligible for bank accounts and credit cards. They have to pay certain monthly wage for credit lines so that credit cards issuers can confirm repayment capability of the user. In case of prepaid cards these conditions were not present. However, with new regulation in place, two major benefits of prepaid cards will be eliminated, which are, removal of overdraft fees and tighter control on consumer funds.

Due to new regulatory framework, prepaid card issuers will be forced to impose high overdraft charges on consumers for credit lines. In order to provide higher protection to consumers, operational costs of players in this segment is expected to increase significantly and additional policies are likely to decrease usage of prepaid cards. This is expected to impact service lines of many companies and some players are even anticipated to go out of business.

However, this market condition might open up fresh opportunity for Bitcoin debit cards which have similar functionality like that of prepaid cards but does not involve any stringent regulation or overdraft fees. Balance on these cards can be monitored over mobile app which gives consumers control over funds. Hence this segment could see a sudden increase in consumers which have been deviated from prepaid card usage. Market is predicted to turn favorable in terms of revenue generation for players such as Bitpay Bitcoin VISA.

 It remains to be seen the kind of regulatory framework that will be applicable for Bitcoin cards. At this stage PayNXT360 believes growth story of prepaid cards over the short to medium term remains intact. The extent to which Bitcoin will impact growth of prepaid cards is expected to vary, depending on card category.