Interesting story on TheStreet.com today; we continue to love near monopolies… multiple ways to win here – as the “pooring of America” continues, cash strapped Americans will turn more to credit (before defaulting in some cases), and much of the rest of the world has yet to see their first credit card…

• Visa’s strategy — one shared by rival MasterCard MA — of capitalizing on consumers’ increasing reliance on plastic to pay for everyday purchases, rather than simply big-ticket items. Now, the two companies are looking to prepaid cards as another potential growth area, as they attempt to continue strong growth inside the U.S. and — more important — globally.
• “The big vision is that … people talk about prepaid in the same way they talk about credit and debit,” says Elizabeth Buse, Visa’s global head of product, in an interview with TheStreet.com. “If we’re talking a few years from now, my vision would be we’re not talking about prepaid as an innovation, we’re talking about prepaid as the third mainstream consumer product.”
• The companies also do not extend credit to consumers, instead issuing their cards through bank partners and collecting a fee on each transaction. As U.S. consumers struggle to pay their bills, loan delinquencies and defaults have taken a bite out of earnings at other card-based companies such as American Express AXP and Discover Financial Services DFS, which do hold consumer debt. (key point if you’re new to the blog and have not been following this theme)
• Prepaid cards are often thought of as simply travel and gift cards, which include a set amount and expire once the amount is fully used. But their potential extends far beyond that, the companies say. Both Visa and MasterCard are tapping into traditionally cash- and check-based markets like employer payroll systems, federal and state government disbursements — such as child care benefits and unemployment funds — health care services and rebates. (nice… very nice)
• The latest trend is “reloadable” prepaid cards, in which customers can replenish card funds instead of having a set amount.
• U.S. Bancorp USB has taken an interest in general, reloadable cards, which could be attractive to a huge, largely untapped market: Low-income or immigrant customers and others, such as teenagers, who do not have traditional checking or savings accounts. Such spenders typically turn to check-cashing services, payday lenders, money orders and tax refund anticipation loans in order to get cash — often at high fees, according to Celent.
• According to a December report by Celent, the so-called unbanked population in the U.S. alone is roughly 36 million, representing $260 billion in aggregate income.
• Looking outside the U.S., the potential for these cards is enormous, others say. “We believe that there will be rapid adoption of prepaid in these emerging [countries] alongside debit,” Buse says. “Debit grew so substantially in the U.S. because we all had checking accounts. In these emerging economies today they don’t usually have an electronic payment relationship.” (remember this every time these stocks sell off due to “the weak US consumer”)

[Apr 29: Mastercard Continues to Impress]

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