By Günther Vogelpoel, CEO of Recharge
In the UK, prepaid cards have become a popular financial tool among consumers, taking an increasing share of day-to-day consumer spending. Unlike traditional payment cards, prepaid cards require the user to load money onto the card before use, which helps consumers stick to budgets and control their spending.
Their recent rise in popularity can be attributed to several factors, with consumers utilising prepaid cards to better their budget management during the cost of living crisis, fight rising rates of online fraud and access better banking features.
The prepaid cards market is poised for rapid expansion, projected to surpass the growth of the broader ecommerce industry over the next decade. This surge is set to bring financial services to the underbanked while challenging the established norms of the UK’s traditional financial institutions.
Tracing the Path to Dominance: The Boom in Prepaid Cards
The digitisation of prepaid money over the last two decades has marked a significant shift in the industry, bringing the ability to pay now and buy later to ecommerce, subscriptions and other digital forms of consumption. Significant adoption from consumers the world over has seen the amount loaded onto prepaid cards increase at a rate of 13.5%, from $503 billion in 2012 to $1.8 trillion in 2022. In the UK, adoption of prepaid cards has soared 118% since the cost of living crisis, according to a May 2024 survey from Recharge.
One of the most significant advantages of prepaid cards is their role in budgeting. Since they do not allow the user to spend more money than is loaded onto the card, it is easier to control spending and adhere to a budget than credit cards or bank-issued debit cards. This capability, enabling cash-like hard limits on purchases, proved vital to consumers attempting to keep costs down during the cost of living crisis. With a harsh macroeconomic climate persisting in the UK and further afield, consumers can be expected to increasingly rely on prepaid cards to save money as they continue to access services online.
Prepaid cards have also benefited from their strong security and privacy credentials in an era plagued by data breaches and malicious online activity. By using a prepaid card, users can limit their exposure to online fraud; if their card details fall into the wrong hands, the potential loss is confined to the balance on the card, unlike a debit or credit card that links directly to a personal bank account with potentially much more to lose.
The rapid rise of challenger banks, of which adoption increased from 9% in 2019 to 24% in 2023, has also supercharged the UK’s use of prepaid cards. The use of challenger banks as auxiliary accounts – accounts not receiving pay cheques and only topped-up for short term spending – falls under the remit of prepaid cards. This practice has boomed in popularity in the UK over the past decade, driven by consumer-centric features including low international fees, virtual cards, easy access savings accounts and much more. Therefore, a high degree of customers are opting to open a second bank account with a challenger bank alongside their traditional bank account, taking advantage of the branch networks and extensive customer support afforded by high street banks whilst also accessing the cost-saving advantages and array of digital features enabled by the likes of Wise and Revolut.
Prepaid cards: An emerging payments powerhouse
Amid the bleak performance of the UK’s ecommerce market, with its share of retail sales falling from 37.6% in 2021 to 32% last year, prepaid cards are bucking the trend. Allied Market Research recently published a report anticipating that the global prepaid card industry will grow from $2.5 trillion in 2022 to $14.4 trillion in 2032, a CAGR of 19.5%.
One of the key drivers of this impressive growth is the universal accessibility of prepaid cards. Unlike traditional bank accounts, prepaid cards do not require identity verification or a registered address, empowering consumers previously excluded from formal financial accounts to access online services. This boost to financial inclusion is a key enabler for marginalised members of society, enabling them to store their money digitally and increasing the range of merchants they can access. Therefore, the prepaid card industry has a large user base across all demographics and locations, helping to underpin demand throughout the current recession.
The growing influence of prepaid cards has forced a reaction from traditional UK institutions, with many launching standalone products to compete. From travel cards to full fledged neobanks, including HSBC’s Zing and Santander’s failed Openbank launch, traditional institutions are scrambling to retain customers tempted by challenger banks.
The rise and rise of prepaid cards in the UK shows no signs of slowing down, providing a crucial budgeting and digital privacy tool with widespread consumer adoption. Universal accessibility has bolstered the customer base of prepaid cards, onboarding the underbanked and forcing a reaction from traditional institutions.
