Research Paper

Stored Value Cards: Challenges and Opportunities for Reaching Emerging Markets

This paper discusses the implications of stored value cards for unbanked and underbanked consumers, exploring positive effects such as the potential to build assets and improve credit records.

Friday, April 8, 2005

In recent years, the financial services industry has become very inventive around new uses of technology to improve the structure and delivery of retail products. One relatively new type of payment product, stored value cards (SVCs), serves as a cash or check alternative. The purpose of this paper is to discern the implications of this emerging product. The study will discuss whether SVCs could offer consumers the potential to build assets and improve their credit records and will highlight policy issues related to SVCs. At this point in the industry’s development, many of these cards do not provide a platform for saving, asset-building, or building or repairing credit. However, SVCs could pave the way for individuals to have both transactional services and links to broader financial opportunities, thus more closely mimicking traditional bank accounts.

As many as 20 million American households—disproportionately poor, minority, lower income and young—are unbanked. Additional households, estimated in the millions,conduct most of their financial transactions outside of banks even though they may have a savings or checking account. Yet having a relationship with the financial services system can minimize the cost of financial transactions and help turn income into savings, assets and wealth. SVCs are being heavily marketed to unbanked populations. Moreover, some SVC providers are focusing their marketing efforts on immigrant populations, youth, and individuals with tarnished credit.

Stored Value Cards: Challenges and Opportunities for Reaching Emerging Markets

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