Prepaid Debit Cards Overview

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Prepaid Debit CardsOverview22 September 2009T. Jack WilliamsPaymentcard Services, Inc.

Agenda for Today Overview of payment cards Overview of prepaid debit process flow Mobile technology and impact on money remittance Prepaid cards and Law Enforcement2

What is Prepaid Today? Prepaid is a virtual account that holds a value balance,maintained in a financial institution whereby funds areaccessable via; Plastic card, point of sale, bank teller or ATM Mobile Phone, remittance funds movement, balance andactivity history, soon commerce at point of sale Internet, funds movement, balance and history and online purchases Interactive Voice Response (IVR) balance and activityhistory, remittance3

Industry Players Cardholder – Card recipient Issuing Bank – Card sponsor, holds funds, clears and settlestransactions Network Brand – MasterCard, Visa, Discover, AmericanExpress for signature. NYCE, Star or Pulse for PIN networks Processor – Facilitates funds movement and tracking, holder ofall transaction and account information Program Manager – Marketing and sales of cards4

The Transaction ProcessApprovalRequestMerchantAcquirerProcessing Response IssuerNetworkResponse Types for Branded Prepaid Cards 5ApprovedDeniedPartial AuthorizationBalance InquiryCard ActivationReferral

How Prepaid is Different A prepaid card can be loaded in many ways, ACH directdeposit, credit card, or with cash at any one ofthousands of loading merchants nationally Cards can have a wide range of attributes 6Open Loop – Universal acceptance; network brandedClosed Loop – Merchant specificLimited Merchant – Set of defined merchantsAnonymousPersonalizedOne time useReloadable

Prepaid Card Types General spend – everything a bank offers but a security deposit box Direct deposit, bill pay, online banking, transfers, etc. Payroll, expense, per diems Teen/family Travel Government payments Gift cards Loyalty7

The Prepaid Market Over 312B spent with prepaid cards in 2008 Estimated that over 1.3T will be spent on prepaid in 2012 Appeal to a variety of different markets 8Govt. disbursement 44.8% of total, growing at 101%General spend 33.0% of total, growing at 117%Incentive cards 5.3% of total, growing at 48.5%FSA card 5.0% of total, growing at 69.8%Payroll 4.6% of total, growing at 27.2%Gift 3.8% of total, growing at 22.2%All others, 3.5%, growing at 66%

Where is the growth coming from The movement to prepaid debit card is being driven fromthe cash and check market In the US in 2009, it is estimated that the total cash andcheck market will be 7.6T The “cardable opportunity” from cash is estimated to be 2.4- 2.9T Almost all will be on open loop prepaid debit cardaccounts, both with PIN only and Signature/PINconfigurations9

Global RemittanceRapidly expanding global remittance marketGlobal Remittances, 2003-2008565,000600,000USD 720337,207200,000100,000020032005200620072008 Total global remittances growing at 63% over the last 5 years. Note that unrecorded remittances can be up to 50% more insize. Formal remittances to developing countries have grown from USD 143 Bn in 2003 to 251 Bn in 2007, resulting in a 75%increase.Source: World Bank, July 2008102004

Top Ten Remittance Countries, 2007Top Ten Rem ittance Receiving Countries, 200730.027.025.7 India, China, Mexico and thePhilippines receive approximately28% of global remittances25.025.0USD ( BeomlgUan.KiandPolaainceanSpi The U.S., Russian Federation, SaudiArabia and Switzerland account fornearly 39% of all source dNetherlaboxemsiasurglyanmerGI taLuynaiSplait zerSwiAudndiarabnSaFederat ioU.anssiRu1115.6Source: World Bank, July 2008SUSD ( Bn)Top Ten Source Remittance Countries, 2007

PIN Networks Are used for all ATM traffic, some POS traffic ATMs are supported by either domestic or internationalnetworks Domestic networks are for traffic that is from a card witha US issued card and for transactions performed at USATM International networks are used when a US issued cardis used overseas Requires international routing of the traffic and internationalclearing of the settlement files for payment and funds movement Is used for cash access via ATM globally12

Signature Networks Used for both credit and debit transactions worldwide Used for the purchase of goods and services at merchant locations Not used for cash movement with exception of cash advances at a bankteller window13 AMEX, MasterCard and Visa operate as primary global gateways Discover, JCB, Diners and others will often use rails of primarygateways Accepted in many more locations than PIN, thus preferred byissuers as more profitable Signature revenue to issuer is about 1.3% of transaction; PINrevenue at point of sale to issuer is about 0.22 per transaction

Mobile Remittance Mobile phones are the preferred channel for global remittanceprogram managers and money launders because: Prevalence Mobile phones are the first consumer technology to be moreprevalent in developing countries than developed* Speed and lack of trackability Accessibility Requires extra vigilance for security and funds tracking In 2011, transactions worth 657 billion will be handled worldwide bymobile financial services* Uses for the mobile device continue to expand, such as bill payment* Source: GSMA14

SMS Use of text messaging to send funds, check balances, etc. Near universal technology No barrier to use However, there are security concerns Short codes for easy movement of SMS can be obtainedeasily15

Downloadable Application One time download of application to phone Utilize to send money, check balances, paybills, manage accounts, etc. Requires more sophisticated phone Multi-step process to sign up Highly secure, utilizing PINtechnology16

Mobile Commerce Mobile FunctionsMain Menu 17Easy to useinterfaceWork on any phoneCustomizableMulti LingualAccount BalanceLoad MoneyMove MoneyActivate CardShows the currentbalance according tothe transactions listedin the transactionhistory. Availablebalance takes intoaccount any brandnew transactions thathave not been addedto the history yet.Allows customer tomove funds fromthe credit card onfile onto theirmCash card.Customers enterthe amount to loadand the PIN fortheir mCashaccount and thenclick on LoadMoney.This allows mCashcustomers to movemoney from one mCashaccount to anothermCash account.Customers enter theamount to send, themobile number ORmCash card number ofthe recipient, their ownPIN, and then click onMove Money.This section allowscustomers to Activatetheir new mCash card.Customers enter theircard number from thecard provided at sign up,the expiration date andCVV security code fromthe card, and create aPIN for the account.17

Prepaid and the Law Rapidly growing prepaid market is great for the industry Millions of people use prepaid legally and for substantial good It is only a few that use them illegally However, it represents unique challenges for law enforcement Money laundering and cross border smuggling are a few ofthe illegal applications of prepaid cards Nevada has passed a bill that became law on 1 July 2009,(SB-82) to make prepaid debit card funds and personalinformation available to law enforcement.18

Innovations on the Horizon Continued movement toward a global economy andprocessing environment, prepaid is not domestic it isglobal Criminals are using prepaid as a means to replacebulk cash to the extent possible Financial services to America’s underbanked willbecome a reality for millions, not just a sales pitch Many other applications now being developed tomeet an ever changing processing environment19

Conclusion International money remittance using prepaid physicaland virtual accounts and mobile technology is rapidlygrowing and here to stay It is erasing borders globally, funds from anywhere toanywhere in seconds will become the standard Use technology to your advantage - we must find waysto get ahead of the curve Questions?20

For more information, please contact:T. Jack WilliamsPaymentCard Services, Inc.tjackwilliams4@aol.com702.609.7026 office502.609.0109 cell21

Overview of payment cards Overview of prepaid debit process flow Mobile technology and impact on money remittance Prepaid cards and Law Enforcement. 3 What is Prepaid Today? Prepaid is a virtual account that holds a value balance, maintained in a financial institution whereby funds are

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key focus group findings on prepaid cards The market for prepaid debit cards1 is large and growing fast. in 2009, 28.6 billion was placed onto reloadable prepaid cards in the united states.2 By 2013, that figure is expected to reach 201.9 billion.3 While users without bank accounts may see these cards as a safe repository for their money,

A prepaid card may look exactly like a credit card or a debit card. However, instead of being linked to your bank account (like a debit card), or providing you a line of credit (like a credit card), a prepaid card lets you spend only the amount that's been pre-loaded onto the card. There are two kinds of prepaid cards: gift and reloadable.

Usage Terms 5 6 ・Account term varies with number of Prepaid Cards registered. ・Usage period starts the day after user or Prepaid Card registration. ・Register multiple Prepaid Cards to extend usage period to up to 360 days. Account is active for 60 days after Prepaid Card registration 3,000 or 5,000 Prepaid Cards 60 days Phone number remains valid and calls can be received only.

The prepaid cards discussed in this report are debit cards that are not attached to a traditional individual bank account, can be reloaded with funds, and can be used anywhere that accepts debit cards. In Pew's survey, 5 percent of adults (implying roughly 12 million people) used these prepaid cards at least monthly, answering "yes"

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