Last month we saw a stir in the prepaid industry, with the introduction of the revised regulations from the US’ Consumer Financial Protection Bureau (CFPB). The new rules are designed to set strong federal consumer protections for prepaid account users. They stipulate that financial institutions must limit consumers’ losses when funds are stolen or cards are lost, investigate and resolve errors, and give consumers free and easy access to account information.
The regulations have been met with a number of objections, with many in the industry complaining that prepaid providers have a relatively short time to adapt to the new ruling – just 12 months.
These revised regulations may not be the perfect solution for the entire industry, particularly because the definition of prepaid can be a major cause of confusion in itself. However, regulations should not come as a surprise to anyone in this space, given the huge uptake in prepaid use in recent years.
According to a 2015 report from the Pew Charitable Trusts, around 12 million people in the US use prepaid cards at least once a month, and approximately $65 billion was spent with these cards in 2012 - more than double than was spent using the cards in 2009. This surge is in part due to the changing nature of what we constitute as a prepaid service. With the growth of mobile payments (up 42% this year alone), the prepaid model no longer requires a physical card. As such, offering a prepaid service within a mobile solution has become a favoured model by a number of growing challenger banks as they await their full banking licence.
Invariably, where you find this level of innovation and customer uptake, you will find regulation following closely behind. This is not a new concept. The first car was introduced in 1893, but regulations on speed limits didn’t come into play until 1901. The difference today is that technology develops at such a tremendous pace that it’s even harder for regulators to keep up and establish what is right for both the industry and consumer.
As such, rarely do regulators get it right first time. It can often be a matter of trial and error to establish the best approach to apply safeguards without squashing innovation. We are still seeing regulators battling over the best way to deal with things like data protection online – over 20 years since the establishment of the World Wide Web.
Bearing in mind that regulators keep a closely follow rapidly growing industries, prepaid providers in the UK would be wise to sit up and pay attention to regulatory movement in the US. While regulations this side of the pond will not be a carbon copy of those set out by the CFPB, it is likely that our national regulators will be considering movements in this direction, given the huge growth of prepaid technology in the UK.
As Currencycloud CEO Mike Laven recently noted in his ‘Responsibility runs deeper than rules’ blog, ‘every business involved in the money transfer ecosystem has an ethical responsibility to ensure that money moves safely, securely and ends up in the right hands’. Service providers can’t comply with regulations that are yet to be put in to place, but they can prepare themselves so that they are ready in the event that they are introduced. By basing a prepaid business on a cloud platform, developers will have the flexibility to adapt to regulation as it evolves.
When it comes to technology developments and customer demands, prepaid providers are proving themselves to be among the quickest to adapt their solutions and grow their enterprises. In order to truly future-proof their enterprise, it’s important that developers in this space apply the same approach to regulation – ensuring that in the absence of absolute regulation that they practice responsibly and they have the flexibility to adapt to the inevitable regulatory shifts and turns of the future.