Mischaracterization of headline in April 2023 Savers Round-Up | Site suggestions | Discussion forum

Hi Peter:

With regard to the April 2023 Savers Round-Up, with all due respect, I believe that the way in which you've characterized the closure of the Mogo prepaid Visa and the Stack prepaid MasterCard card devaluation as the 'demise' of the prepaid credit card is a gross mischaracterization and, I would submit, incorrect. What we're seeing is a right-sizing of the space. Those that have built sufficient scale to generate sufficient income from credit balances on cards and the interchange fees from purchase spending will have less or no need to reevaluate their business models; those that haven't have either had to try and readjust their business models, to offer white-label prepaid card services to other partners (i.e., Koho, Stack), impose fees when certain regular deposit and spending thresholds are not met (i.e., Stack) , or impose subscription fees for 'premium' services (i.e., Koho, Stack, etc.), or they risk going away (i.e., Mogo). With Mogo, a substantial portion of their business was in the subprime lending and consumer finance spaces, even moreso than EasyFinancial Services, and in cryptocurrency. With the federal government's recent initiative to lower the criminal interest rate to 35%, a step too far in my opinion, it will have unintended consequences of helping to forcing people with poor credit histories on a path to restore their credit history. What the federal government should have done, if they felt it was still necessary to lower it, is to require the Big Five banks to extend a small amount of credit to anyone. Banks have special licenses of public trust we establish to them; it is a mistake to characterize them as a private businesses that can make their own risk-based decisions. If we want to require them to do something, such as pay for all deposits to be insured or extend limited credit to marginal borrowers, that's absolutely our public right, and if they don't like that, they can turn in their banking license and we'll find another institution wanting to do that. 🙂

Anyway, I digress, the Mogo situation was both institution-specific and federal government-induced. As such, they are pivoting to their commission-free trading platform, for which they're now a New Self-Regulatory Organization dealer member and a carrying broker at that.

By contrast, the prepaid credit card market is consolidating around several established players. Peoples Group, which includes the regulated entities Peoples Trust Company, Peoples Bank, and non-regulated Peoples Card Services L.P., continues to see what I would call explosive growth in its assets under administration. In the last ten years, while the growth in their regulated deposits and loans/mortgages has remained relatively constant to growing modestly (about $5-6 billion), their AUA, which includes the prepaid card balances administered by Peoples Card Services L.P. and issued by Peoples Trust Company. Because the credit card balances are now CDIC insured and because there's no provision to report that information on financial institution data returns, we now have no visibility in terms of the growth in the space, but thankfully, Peoples Group voluntarily publishes their annual report that includes their AUA. That AUA has now grown to more than $25 billion, a new record. They issue cards for Stack (including Aura), Mogo, themselves, and others.

At the same time, the EQ Bank Card is setting monthly records in terms of new-to-bank and existing customer enrollments, with 10,000 net new customers signed up per month. They're on track to move from 308,000 to nearly 500,000 direct-to-consumer customers by year's end.

Equitable Bank also launched the fee-laden Joker Prepaid MasterCard to try and fill and rejuvenate the space in non-personalized, fee-based prepaid credit cards vacated by Vancity and Vancity Community Investment Bank. I suspect consumers are more fee-conscious, and that effort will fail, but they're surely trying.

The PC Money Account has something like 120,000 cardholders in Q3 2022 and continues to grow almost as rapidly (there are some 2 million plus PC Financial cardholders in total).

Wealthsimple has surprised me in terms of their cardholder growth. While they don't publicly break out their Wealthsimple Cash Card and Wealthsimple Save balances, from publicly-available sources, I've been able to confirm the following:
- Wealthsimple does publicly say they have more than 2 million active customers, excluding their Wealthsimple Tax income tax filers;
- They have more than $19 billion in assets under administration as at year end 2022), with a $3-5 billion annual run rate in AUA growth;
- Of that $19 billion in AUA, they have more than $3 billion in AUM within their Wealthsimple Invest robo-advisor business

While not confirmed, I believe it is reasonable to conclude at least $3 billion of that $16 billion in remaining AUA is in their Wealthsimple Cash product. A further $2-3 billion is likely in Wealthsimple Save and the balance is in Wealthsimple Trade as I suspect Wealthsimple Crypto remains a minor aspect of their business. At that growth rate, they and Questrade, with its $30 billion in AUA, are on pace to overtake core National Bank Direct Brokerage in the next three years, I suspect. I suspect they've already overtaken Desjardins Online Brokerage.

Put another way, if Wealthsimple were a credit union, they'd be a top 5 credit union in total AUA and their Wealthsimple Cash product alone would rank them larger than #25 ranked Interior Savings Credit Union.

Put yet another way, in terms of total customers, they have more than four times the membership base of Canada's largest credit union by members, Coast Capital Savings Federal Credit Union, which appears to have plateaued and its new member growth seems only to be offsetting their exiting members. 🙁

I would suggest a rephrasing of the headline to characterize it as a prepaid credit card market repositioning or even a shake out of the weakest, unprofitable links. 🙂

I'm actually seeing more troubling signs in the credit union space, with declining membership bases, which are forcing mergers of institutions that have roughly the same number of branches serving across fewer and fewer institutions serving small numbers of members...it would probably be more accurate, at least in terms of customer growth and deposit growth, to characterize credit unions as in ill health...they're not in palliative care, but many certainly require some home support care...

Cheers,
Doug