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Prepaid Cards General Overview PDNB 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 Current balances on prepaid cards exceed $38 billion. Balances expected to grow to over $80 billion by Growth in transaction volume, : 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 Proprietary Limited Use No Network or Card Scheme 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 RiskModerate RiskLow Risk Signature Based Consumer Loaded Non-Personalized PIN Based Corporate Loaded Personalized Private Label Or 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 PayrollCampus Card Shopper’s Card Moderate Risk Money TransferGift 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) phone/fax Liz Nutting, Assistant Vice President (760) phone/fax
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