TOWERGROUP: CONSUMERS ACCEPTANCE OF PREPAID CARDS WILL PLAY MAJOR ROLE IN PROFITABILITY OF EUROPEAN BANKS

Needham, MA - 26 September 2006

Since the announcement of the Single Euro Payments Area (SEPA) directive - which requires cross-border payments to be treated in the same manner as domestic payments - Europe's movement towards a "harmonized" market has left many European banks challenged relative to becoming more profitable. SEPA is pushing banks to find new motivators to increase customer usage of low-cost payment instruments such as credit, debit, and charge cards, as opposed to high-cost instruments such as checks.

As European banks increase fees for cash and checks while providing discounts and incentives for online or card payments, new research from TowerGroup finds that a sharp rise in the deployment of prepaid products over the next 10 years will be key to supporting bank profitability. However, TowerGroup believes that European banks success will be elusive as long as the use of cash remains high - underscoring the need for a true debit-based alternative that does not include identity recognition as part of the electronic payment.

Prepaid cards offer a solution that can be as anonymous as cash, yet work with both online and offline payments. This direct substitute for today's cash and check options will offer Europe's banks an ideal mechanism to achieve efficiencies after SEPA goes into effect. TowerGroup estimates that by 2010, prepaid cards usage will be EUR75 billion, a 600% increase over 2005, with 375 million cards will be in circulation, a 1,000% increase over 2005.

The new report titled, "Prepaid Cards: A Critical Market Foundation of Europe's SEPA Plans" by Ralph Silva, senior analyst in the European Banking & Payments practice at TowerGroup, and Chris Skinner, associate director of TowerGroup's Payments and Retail Banking Research in Europe, is one in a series of report reviewing the harmonization of European financial markets. The report focuses on the critical implications surrounding cash usage across European Union countries as the plans for SEPA and the Payments Services Directive (PSD) are finalized.

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