Mercator Report: New Strategies for Prepaid Profitiability: A Pro Forma Analysis

New research from Mercator Advisory Group creates a base-level prepaid portfolio pro forma utilizing data from the FRB report "Consumers' Use of Prepaid Cards."

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Card Life & Its Impact on Maintaining Portfolio Stability of Fixed Size

“This report explains how new network interchange rates have overturned long-held dogma, charts the impact of average card life on card acquisition, and shows the impact of various fee structures on portfolio profitability.”

Boston, MA (PRWEB) March 23, 2013

Mercator Advisory Group has created a pro forma for the analysis of prepaid portfolios based on averages in the study "Consumers' Use of Prepaid Cards: A Transaction-Based Analysis" by the Payment Cards Center (PCC) of the Federal Reserve Bank of Philadelphia. The Mercator research report, New Strategies for Prepaid Profitability: A Pro Forma Analysis, identifies key metrics within the PCC study specific to general purpose reloadable (GPR) cards market; it also identifies key insights associated with operating such a portfolio with different values for fee structures and average card life for banks exempt from the Durbin Amendment.

"A common problem for program managers in evaluating a prepaid solution is predicting what values to enter into the business model for cardholder transactions and merchant locations needed to derive interchange and ATM fee income. Equally challenging is determining average card life. This report documents the values determined by the FRB report and identifies the impact of different fee structures and average card life values on the profitability of portfolios of different size. Using a live pro forma model to evaluate portfolios helps expose outcomes that are not intuitive," comments Tim Sloane, director of Mercator Advisory Group's Prepaid Advisory Service and author of the report. "This report explains how new network interchange rates have overturned long-held dogma, charts the impact of average card life on card acquisition, and shows the impact of various fee structures on portfolio profitability."

Highlights of this report include:

  • The top merchant categories frequented by prepaid cardholders and the average ticket value for each location, as derived from the Federal Reserve's PCC research
  • Calculation of interchange revenue (for the merchant categories identified by the PCC) and for interchange income derived from a portfolio
  • Comparison of impact on portfolio income of cardholders' adoption of PIN versus signature debit
  • Impact of direct deposit enrollment on a portfolio's active card life and profitability
  • Implications of processor point-of-sale transactional costs associated with PIN and signature authorizations offsetting the network interchange rates
  • Metrics regarding the card acquisition levels needed to maintain a stable portfolio across multiple average card life scenarios

This report is 32 pages long and has 11 exhibits.

Members of Mercator Advisory Group's Prepaid Advisory Service have access to this report as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits.

Please visit us online at http://www.mercatoradvisorygroup.com.

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About Mercator Advisory Group
Mercator Advisory Group is the leading, independent research and advisory services firm exclusively focused on the payments and banking industries. We deliver pragmatic and timely research and advice designed to help our clients uncover the most lucrative opportunities to maximize revenue growth and contain costs. Our clients range from the world's largest payment issuers, acquirers, processors, merchants and associations to leading technology providers and investors. Mercator Advisory Group is also the publisher of the online payments and banking news and information portal PaymentsJournal.com.


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