Image by Mohamed Hassan from Pixabay
Digital what?
Less than a decade ago, if someone had said the words' digital wallet' to you, you might have looked back at them blankly and asked, 'Digital what?' ' However, the usage of virtual cards and other fintech products is moving at such an accelerated pace, that many of us leave home these days with neither physical wallet or plastic card. Some of us who have less-than-perfect battery life on our phones might be inclined to tuck one of our bank cards into our phone case, but they are really there just for emergencies.
Digital wallets can hold a variety of payment cards – what the user chooses to put in there is really up to them. Some people choose to have all their debit and credit cards stored on their phones and devices, while others just select specific payment options. However, digital wallets are about so much more than just payment.
More than just payment options
Travelling in the past meant carrying paper tickets and boarding passes printed on paper. These days, a digital version is all you need. The same goes for theatre and concert tickets, storecards, loyalty cards, discount schemes, and, in the UK, even organ donor cards are stored digitally. While many small and independent retail businesses still use physical collector cards and rubber stamps, there are also those that have gone digital, with points linked directly to purchases or reviews. Points are often rewarded with money-off vouchers, which are stored as prepaid credit on the outlet's digital card/
Prepaid cards used to mostly be in the form of gift tokens or store-specific payment cards. However, there has been huge innovation in how these cards are used both physically and digitally around the world.
UK and Canada – similar but different
One area that has seen significant expansion is the prepaid digital card market. The UK has been at the forefront of prepaid card adoption, and it is poised for substantial growth. Recent figures estimate that the market could grow 10.3% in 2025 and be worth almost $60 billion. A significant percentage of prepayment cards in the UK are in use in the energy sector, particularly for the widespread use of electric and gas meters. Whereas Canadians tend to use their prepayment cards for pleasure, with prepayment cards being popular for use in outlets like Starbucks and Canada's favourite coffee and doughnut joint, Tim Hortons.
From energy to entertainment
In Canada, the market is poised to grow by 6.7%. Given that it does not have the same penetration of prepaid energy meters as the UK, this is a significant figure. One area where prepaid cards are particularly popular in Canada is for online gambling, as they enable players to establish a budget and adhere to it. As Canadians have a higher propensity to gamble than other equivalent populations, the prepaid digital card business has been quick to capitalise on the market. Ipsos recently reported that six out of ten Canadians participate in real money gambling, so it is an important sector.
Analysis suggests that it is more affluent Canadians who gamble, and that those with household incomes below $25,000 are the least likely to do so. Digital prepaid cards are popular at many online Canadian casinos. It is noted that people who pay upfront also like to be able to access fast withdrawals, and why not? No one likes to have their money tied up in someone else's account if it is not necessary. Casino.ca compares instant withdrawal casinos and ranks them on various criteria, including the speed of payouts, which can range from five days to near-instant access.
Open versus closed-loop cards
Obviously, it is not just the online casinos that are driving the expansion of the Canadian prepaid card market, but it is expanding rapidly. The increasing adoption of open-loop prepaid cards, digital wallet integration, and corporate acceptance drives the growth. Open-loop payment systems process payments across a range of financial institutions and work in a similar way to any other payment card. Closed-loop cards restrict transactions to a specific retailer or network.
Consumer demand for flexible and secure payment options continues to grow. In response, financial institutions and fintech companies enhance their offerings to meet evolving customer preferences. Businesses are also using prepaid options to streamline financial management and incentivise employees, solidifying the role of prepaid cards in the corporate sector. Many companies now use pre-loaded expense cards rather than open-ended credit facilities.
Alternative banking services
A prime example of innovative prepaid cards is the type that banks like Starling are introducing. Many people allow family members to use their payment card to do things like grocery shopping, or maybe want to give children a payment card without a full bank account. Starling has the option for additional cards on their current accounts. Unlike a joint account, they do not give the holder full access to the account but simply access a 'space'. The account holder can move money into the space, set spending limits and let other people have a card to spend from this space. Currently, their 'Shopping' space does not offer digital prepaid card facilities, but their children's and teen Kite space does.
Bringing market parity
Across the prepaid market, digital competition is expected to intensify as new entrants introduce innovative products to the market. This might be in the form of open or closed-loop services, but many people prefer prepaid services due to the level of control they offer. This is not always the case, however, with the UK energy market, where consumers are often charged higher rates for prepaid meters than those who pay by direct debit or on fixed tariffs. It has been reported that there are moves to lower prepaid rates in the UK, with the government and Ofgem intervening to ensure that prepayment customers pay the same or less than those paying via direct debits. Many hope that the same will happen with water bills as well.
It is expected that prepaid cards will be further integrated into mobile wallets to offer enhanced convenience, while technological and regulatory advancements will trigger more innovation.
