Nearly 60 million Americans (receiving $1.1 trillion in government welfare and employer paychecks annually) come under the category of underbanked. How about reaching out to those individuals that more than 13,000 American banks have failed to reach out to thus far? Certainly there's money to be made.
GPR (general-purpose reloadable) prepaid debit card companies are laughing their way to the bank by giving their users a bank-in-their-pockets experience. If you play your cards right, so can you.
The concept of prepaid debit cards has struck a chord with many Americans. They are easy to understand and operate, as principally they are similar to traditional debit cards, except that they operate independent of a bank account -- a barrier to entry for many individuals who fall within a lower-income segment. Plus, they are much cheaper to maintain and operate. After all, not everyone can afford to maintain a checking account that could cost $10 to $15 dollars a month, especially those within this segment.
In its market report "Prepaid Market Forecast 2009 to 2012," Mercator Advisory Group forecast that the GPR card market will grow at a mind-boggling 92% compound annual growth rate from 2008-2012 and is likely to reach $118.5 billion in annual funds loaded by 2012. Thus, I see a huge opportunity to those Fools able to recognize the trend.
Paving the way
There are a few well-positioned companies to watch in this category:
Green Dot Corp.
Earlier this month, New York-based private company Plastyc, which also provides prepaid card services, received $2 million in a strategic investment from the venture capital firm Core Innovation Capital. Core Innovation is an investment partner of the Center for Financial Services Innovation, which focuses on financial services for the underbanked.
In addition to the companies mentioned above, money transfer biggie Western Union
All of these companies and more are quickly positioning themselves to capitalize off individuals who are stuck using cash for the majority of their transactions. Considering the many strictly cash businesses that exist in this country and all those that employ folks who cannot or will not stick their money into a bank, perhaps Fools should consider getting a piece of the action.
The Foolish bottom line
Fools are always looking to invest in a market that's growing at a rapid pace. More and more, players are entering this market to cash in on the U.S. banks' aversion toward offering free or reduced-fee checking accounts as a result of the legislation scaling back the charge on overdraft fees. Also, with 1 in every 9 banks in danger of a collapse, these bankless reloadable cards may just be the answer. Fools should stay tuned.
Aditi Baid doesn't own shares of any of the companies mentioned in the article. Wal-Mart Stores and Western Union are Motley Fool Inside Value recommendations. Western Union is a Motley Fool Stock Advisor selection. Wal-Mart Stores is a Motley Fool Global Gains pick. Motley Fool Options has recommended a diagonal call position on Wal-Mart Stores. Motley Fool Options has recommended a written covered strangle position on Western Union. The Fool owns shares of Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.