In an attempt to expand its prepaid card offering, yesterday, card giant – MasterCard Inc. (MA) announced a global strategic alliance with money transfer giant – Western Union Co. (WU) – to offer consumer-friendly prepaid card service across the latter’s multiple non-US locations.

According to the agreement, MasterCard is offering a prepaid card that will enable to move money from Western Union directly to MasterCard’s credit, debit and prepaid cards, and vice versa. This prepaid card can be refilled at all MasterCard rePower locations as well as at about 485,000 global agent locations of Western Union.

This service further assures a reliable, secure and convenient financial payment service to the consumers across the globe. The companies, who have been functioning in this area of service in the USsince last year, have already successfully tapped the US market with 1.2 million prepaid cards as of September 2011, that almost doubled from year-ago period. Meanwhile, Western Union consumers loaded about $120 million on prepaid cards during the third quarter of 2011.

Besides, with the rapid evolvement of eCommerce and the regulatory challenges against the vanilla credit and debit cards, prepaid cards are now making up for the lost revenue opportunities for most card giants such as MasterCard, Visa Inc. (V) and American Express Co. (AXP). According to Mercator Advisory Group, the US prepaid card market had inflated to $40.85 billion in 2010 against mere $2.7 billion in 2005.

On the flip side, Western Union has been able to take a proactive step to further knead its prepaid card services, while its expanded money transfer network is expected to help both the company and MasterCard to reach out to forsaken consumers worldwide.

Moreover, the service users of Western Union can now load money on the prepaid card rather than remitting cash and this card can be used wherever MasterCard is accepted. This, in turn, is likely to create an efficient electronic payment service portal in the near-to-intermediate term.

Further validating this opinion, there lay an unexplored market for prepaid cards for the senior group of the society, whereby MasterCard estimated about 2.5 billion adults being underserved within the US itself, while about 25% of this lot is devoid of any kind of a conventional financial payment service.

Hence, while a highly developed nation like the US generates a healthy opportunity for the simplified prepaid debit cards, we believe that ample opportunities lay ahead for both MasterCard and Western Union in the under-developed and developing nations across the globe, where there are no ATMs along with other unbanked regions.

Overall, given the regulatory challenges hovering on the credit and debit cards, the move of MasterCard to direct its synergies toexpand its prepaid card offering appears a viable one, as prepaid cards are out of the scope of any regulatory limitations so far. The attempt will enable the company to process smaller dollar transactions, which is further expected to drive transaction volumes and therefore, the top line. Furthermore, this will also enhance MasterCard’s operating and competitive leverage in the upcoming quarters.

Given the growth catalysts in the near term, MasterCard holds a Zacks #2 Rank, implying a near-term Buy, while the long-term stance remains Neutral.

Zacks Investment Research