It didn’t take long for prepaid debit cards to go from niche product to mainstream. But soon they might be obsolete.
Some of the country’s largest companies are developing mobile wallet applications, which allow customers to use smartphones and other devices to pay for products. The rapidly evolving technology has yet to catch on with many consumers, but some believe the mobile wallet phenomenon could get really big, really soon.
“In five to 10 years, we’ll all be using our phone to pay, not plastic,” said Gil Luria, an analyst with downtown L.A.’s Wedbush Securities Inc. who follows a number of prepaid card issuers. “I think it’s the future for all of payments.”
With that concept in mind, many prepaid card companies are working to stay relevant by preparing for their own mobile applications.
Earlier this year, Monrovia’s Green Dot Corp., the nation’s largest issuer of prepaid debit cards, bought a Silicon Valley tech company that holds a number of mobile technology patents. Another local payment company, Westwood’s WikiLoan Inc., which recently rolled out a prepaid debit card product, this year merged with WikiPay, a micropayment company that has a mobile wallet application.
The opportunity is enormous: Mobile payments accounted for about $105 billion in global spending last year, according to Stamford, Conn., research firm Gartner Inc. By 2016, mobile spending could surpass $600 billion.
Google Inc., Wal-Mart Stores Inc. and PayPal Inc. are among the major corporations placing big bets on the nascent technology. Google Wallet, which allows users to pay for purchases with the swipe of an Android phone, is already accepted at more than 300,000 retail locations.
Steve Streit, chief executive of Green Dot, said there are plenty of opportunities for smaller companies to develop mobile wallet technology, including partnering with some of the larger players. It might also be possible to compete against them, he noted, because Google Wallet and other applications still only have a limited number of users.
Regardless, he said prepaid companies have to be prepared for a postplastic world.
“Anything you do had better be compatible with mobile (technology),” he said. “The mobile banking space is something we have absolutely put a lot of effort into.”
Some startups are bypassing cards completely.
Two new companies – Paperlinks in West Hollywood, and Kuapay LLC in Santa Monica – have recently introduced mobile payment systems – and neither bothered with plastic cards.
Straight to digital
“We didn’t go in the debit card arena,” said Hamilton Chan, the 39-year-old founder of Paperlinks, the tech company that operates the PayDragon mobile shopping system. “We feel like there will be many different (payment) solutions and our forte is technology.”
PayDragon is a cell phone application that hungry folks can use to place orders and pay for food from home or office. All they have to do then is go pick up. The money is deducted from users’ credit cards.
The company, which is expanding to New York and Austin, Texas, recently announced a $1.35 million investment from Rustic Canyon Ventures and partners.
Chan, a Harvard University alumnus who founded Paperlinks after working as an attorney and modernizing his family’s business, Charlie Chan Printing, believes it is only a matter of time before most consumers use mobile tools to shop and pay.
“People will soon recognize that it’s the smarter way to shop,” he said.
Meanwhile, Kuapay offers coupons and stores reward cards, and can be used to make purchases at restaurants and shops.
Its app generates a code that retailers can scan to transfer payment from the consumer’s credit card. Buyers instantly see a digital receipt for the transaction on their smartphones, and can even add a tip at restaurants.
The company, started last year, earns money through transaction fees, which are calculated as a small percentage of the purchase price. Kuapay has a handful of retail partners across Santa Monica and Los Angeles, including Andrew’s Cheese Shop on Montana Avenue and Farrah Florist on Wilshire Boulevard.
Even many companies outside the mobile wallet space have their eye on developments in the technology.
Jon Round, chief executive of Kaiku Finance, a new prepaid debit card company in Westlake Village, said his company has yet to introduce a mobile wallet, but it is a likely product in the future.
“Everybody in the payment space at the moment is jumping into different mobile wallet partnerships,” he said. “A lot of the mobile wallets are actually based on prepaid concepts, so there’s a natural synergy there.”
