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Prepaid Cards General Overview PDNB Electronic Banking Solutions.

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Prepaid Cards Prepaid Cards General Overview General Overview PDNB Electronic Banking Solutions PDNB Electronic Banking Solutions
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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

[email protected]

Liz Nutting, Assistant Vice President

(760) 674-1443 phone/fax

[email protected]


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