Viewpoint: A Win-Win Proposition: Savings on GPR Cards (August 2013)

By  Sarika Abbi, D2D Fund

GPR cards are well-integrated into and play a key role in the day-to-day financial lives of millions of consumers. While GPR cards have become an attractive tool that serves as an alternative to traditional banking products, especially for unbanked and underbanked households, their value to both consumers and prepaid card providers can be strengthened through an enhanced card offering.

Designing GPR cards with features that meet the needs of their consumers is important for providers as the GPR market grows and the focus transitions from a purely volume-based model to one that is relationship-centric. Through this lens, savings is one of the core needs of many underserved consumers who use prepaid cards. According to the FDIC, 29 percent of all households and 31 percent of underbanked households lack a savings account. This savings gap creates a need in the marketplace for innovations that help consumers save when funds are available, especially to meet short-term needs. The need for liquidity is a top motivator for savings, and the lack of it is a significant contributor to financial vulnerability and instability.

While a savings feature on a GPR card can meet a core consumer financial need, it also can help meet the need of prepaid card providers. One of the biggest challenges facing the prepaid card industry today is the short life span of its cards. However, specific features, such as direct deposit, have improved the value proposition to consumers and increased the stickiness of cards. Similar to direct deposit, savings can be a valuable offering for prepaid card providers to attract more consumers, reduce churn and strengthen overall card engagement.

The Savings Challenge: Make it Easy
For many consumers using prepaid cards, a lack of access to affordable savings products coupled with limited funds make saving even more challenging. But this also creates an opportunity for prepaid card providers—to make saving easy and accessible on a card that consumers are using to capture their cash inflows and manage outflows. If this very card opened the door to savings, it would help consumers with limited funds easily park a little bit aside when available and dip into it when necessary to meet short-term needs. By having access to a savings tool that is well-integrated into their daily financial lives, households can capture savings and rely on them instead of using alternatives, such as high-cost credit, for liquidity needs. This will help many households take a step on the path toward financial stability, while helping providers strengthen their relationship with their consumers by more holistically meeting their needs.

With this in mind, Doorways to Dreams (D2D) Fund collaborated with Banking Up to design, pilot and evaluate a savings feature, coined the Rainy Day Reserve (RDR), on its UPside card. Initial findings from the study show the promise of savings on a GPR card as a win-win for consumers and providers. Some of the key findings in Paving the Way Forward: Savings on Prepaid Cards include:

• Strong demand exists for a savings feature on a prepaid card. The Rainy Day Reserve attracted 16.5 percent of UPside account holders to take up the feature. Consumers engaged with the feature given its low barrier to entry—if they didn’t like the feature, they could easily move their money out and back into their spending pocket. Forty-nine percent of users surveyed began using the RDR because it was “easy to try” and 84 percent needed a way to save money. More than a fifth of these consumers indicated that traditional savings methods have not worked for them, highlighting the importance and potential of savings on cards to meet consumers where they are and help them successfully save.
• A savings feature has the potential to reduce churn of GPR cards. With churn high in the GPR market, it’s important to design features that can improve the longevity of cards.  Over the course of one year, we found that non-RDR users were 21 percentage points more likely to have closed their accounts than RDR users. In addition, 88 percent of RDR users surveyed indicated that they would continue to engage with their card for the next six months. Both of these findings highlight the potential of savings to enhance retention and improve a card’s longevity.
• Savings is correlated with higher levels of card engagement, with savers loading more and transacting more with their prepaid cards. Overall, we saw that consumers using the Rainy Day Reserve were more engaged with their card than consumers who were not using the Rainy Day Reserve. Engagement was measured by the amount and frequency of loads onto the card and of transactions with the card. For instance, in an eight-month period, the average total load of RDR users was $6,099 versus $2,440 for non-RDR users. The higher engagement of RDR users highlights the potential of savings to strengthen product sustainability with increased transaction and load volume.
• Consumers are using the RDR as a liquid, revolving savings reserve, setting savings aside when available but dipping into it for short-term needs. Over the course of 18 months, consumers engaged with the Rainy Day Reserve deposited more than $14 million. Many of these consumers have limited to no access to savings and have a need for liquidity to meet their short-term needs before they can build savings for longer-term goals. Given this need for short-term funds, the top three reported uses of the Rainy Day Reserve were to cover monthly bills (such as rent), financial emergencies and weekly expenses (such as groceries).
• Access to savings, even a little bit of savings, can help reduce consumers’ reliance on alternative financial services. With consumers using the Rainy Day Reserve as a revolving savings pocket, it has the potential to reduce reliance on short-term credit, which ends up being costly and destabilizing for households. In fact, of those RDR users that previously have used alternatives to short-term savings to manage their needs, 52 percent indicated less reliance on alternative financial services, with 40 percent relying less on payday loans.

This work highlights the potential of savings on GPR cards and provides one illustrative model of how savings features can be designed and offered on a prepaid card. With the expansion of prepaid cards in the marketplace and the increased access by consumers through channels, such as retailers, employers and the government, there is a real opportunity to explore innovative and cost-effective models to offer savings on a prepaid card that are a win-win proposition.

Sarika Abbi is the director of ideation at D2D. She works on initiatives to design, pilot and evaluate potentially scalable financial products that can improve consumers’ financial stability and mobility. She holds an MPA from New York University and a bachelor’s degree in economics from University of California, Berkeley. She can be reached at [email protected].

In Viewpoints, prepaid and emerging payment professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.