Prepaid Card Provider Employs Unique Strategy to Capture Market

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Banks make bank on fees — an estimated $72.1 billion between the top ten — and $1.7 billion in potential prepaid debit fees are a rapidly growing piece of that pie.

This revenue stream for the financial industry is unique because of the growing importance of niche marketing and the ability for small banks to effectively compete with big banks. Giants like JPMorgan Chase (NYSE:JPM) and American Express (NYSE:AXP) are facing off against companies like BillMyParents Inc., a small cap provider of money-management solutions, such as prepaid cars, specifically to young people.

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Bloomberg reports that BMPI has “snagged teen heartthrob Bieber as a pitchman for a prepaid card that says it helps parents control their children’s spending. He said there will still be room for smaller players despite the presence of American Express and Chase.”

By focusing on a niche market and developing a unique way to meet their needs, BMPI CEO Michael McCoy believes that smaller firms can win a sliver of the market. ““We’re not trying to boil the ocean,” he said in an interview with Bloomberg. “We’re very focused on our demographic and think we have a message and product design that is unique.”

For example, through a mix of marketing directly to teenagers and developing a unique product for their parents, BMPI could readily become the preferred prepaid card provider for a massive demographic. Just for a glimpse of the size: Wired reports that Bieber has a fan base that is more active than that of Manchester United. Combined with product perks like prepaid cards that can’t be used at liquor stores, having an easy mechanism to add emergency funds, and limiting the amount of money that can be spent on a single purchase, all ostensibly attractive to the parent, BMPI could have a winner.

This isn’t a strategy to command the market, just a pre-defined section of it. This makes small-cap firms that are successful at using the strategy prime targets for acquisitions. Firms like U.S. Bancorp (NYSE:USB) have already announced acquisitions of more specialized prepaid card managers such as FSV Payment Systems.

The prepaid car market is expected to reach up to $168 billion by 2016.

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