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Update Newsletter: Fall 2011

PCC Workshops

During the course of the year, the Payment Cards Center’s industry specialists organize a number of workshops around topics in consumer credit and payments. These internal workshops are most often led by invited presenters and follow an informal discussion format. In some cases, the content discussed will lead to written discussion papers or future collaborations with the speaker, while in other instances the workshop will simply serve to educate the audience. Since its inception in 2000, the workshop series has grown to be a focal point for the center’s research agenda. Highlighted in this edition of Update are some of the workshops hosted during 2011.1

March 2011

What Are the Implications for Consumers and Banks When an Organization in the Prepaid Value Chain Goes Bankrupt?2

Jeremy Kuiper, Managing Director, Payment Solutions Group, Bancorp Bank Terry Maher, Partner, Baird Holm LLP Ted Martinez, Leader, North America Credit Settlement Risk Team, Visa Kirsten Trusko, President and Executive Director, Network Branded Prepaid Card Association

Overview: The value chain for network-branded prepaid cards involves more parties than those commonly present in credit- or debit-card-issuing arrangements: the merchant acquirer, processors, a payment network, and a card-issuing bank. These additional participants may include a program manager, a distributor, and a seller. Since a number of independent businesses make up the chain, each one, as well as cardholding consumers, could be exposed to losses resulting from the insolvency of another party in the value chain. This risk is both real and manageable, as illustrated by two recent incidents involving network-branded prepaid cards: the failures of Silverton Bank, N.A., and Springbok Services, Inc. On March 18, 2011 the Payment Cards Center hosted a workshop that examined the implications of insolvency in the network-branded prepaid-card value chain, to review how market participants have responded to this risk, and to discuss controls the industry has developed to mitigate and address these challenges.

August 2011

Adoption and Use of Open-Loop Prepaid Cards for Transit Applications

Tim Walsh, CEO, Ready Credit Corporation

Overview: Transit agencies around the country are redesigning their transit fare payment systems to accept payment cards (credit, debit, and prepaid cards) at turnstiles, fare boxes, and points of entry or exit. A number of transit agencies will soon join the majority of U.S. merchants (87 percent) who accept payment cards at points of sale. In the last few years, the Payment Cards Center has hosted several workshops on the electronification of transit fare payment systems. The first3 focused on the perspective of a large transit agency, and the second4 presented the views of a large issuer of bank cards serving this market.

Our third workshop in this series provided the perspective of a nonbank company that supplies transit agencies with automated prepaid card vending systems and the ability to instantly dispense bank-issued prepaid cards to consumers. This workshop explored the business model employed by the company — Ready Credit Corporation. It also reviewed a number of coordination and communication issues that arise from the complex value chain associated with networkbranded prepaid cards. Finally, the workshop examined what Ready Credit has learned about how consumers think about prepaid cards, how they obtain these cards, and how they use them in practice.