With the economy bogged down in a recession and job losses at the highest levels in decades, spooked consumers are no doubt learning to live on less—less money, less credit and less frivolity.
Prepaid solutions—whether it’s wireless sales, debit card transactions, gift cards and more—offer a surefire answer to consumers who want more flexibility and convenience as they learn that less may, in fact, be more.
The numbers tell the tale: According to the Boston-based financial research firm Aite Group, prepaid debit-card transactions are expected to surge to $150 billion this year, up from about $13 billion just five years ago. And prepaid wireless sales, which were just $8 billion four years ago, are expected to grow to $30 billion by next year—nearly a 400% growth rate over half a decade.
Prepaid also serves the “underbanked” and “unbanked” consumers in the market, a group that continues to grow. Experian Information Solutions Inc., a consumer credit reporting company, estimates that anywhere from 35 million to 54 million Americans operate their business outside the credit system, whether by choice or by necessity.
Prepaid allows these consumers to pay as they go. While performance in each micro-segment in the prepaid industry depends on a number of market factors—everything from brand demand to user flexibility—c-stores are obviously poised to play a big role in gas cards and “vanilla” cards that can be used anywhere.
According to figures from Mercator Advisory Group, the prepaid market isn’t big—it’s huge, and growing exponentially every year. Mercator’s debit advisory head Tim Sloane said that closed-loop prepaid cards grew at a rate of 88% for the five-year period through 2008.
“Many large merchants who were selling their gift cards in their own stores as well as in the prepaid malls many c-stores use just freaked out last year,” he said. “The volume was growing so fast they had to question if they were selling through convenience stores at the expense of their own sales.”
Closed-loop card sales through prepaid malls totaled nearly $3.7 billion last year, Sloane said, and c-stores were definitely a major distribution channel.
But even in prepaid, there’s room for invention. Convenience retailer 7-Eleven Inc. recently began selling prepaid gift cards for MMOG’s, or Massively Multi-Player Online Games. Customers can purchase gift cards that allow them to buy monthly game subscriptions online or make virtual purchases in online games.
Prepaid may be a complex, ever-changing segment that requires keen store-level marketing, said Greg Marlowe, category director for Indianapolis-based Village Pantry Inc., but it’s a segment that can pay off.
Sixty-five key decision makers at 65 convenience chains that participated in the 2009 CSD Brand Preference Study identified three top performers in the prepaid segment: PaySpot Inc., Coinstar Inc. and Verizon. Honorable mentions went to InComm and AT&T.
Among the 10 companies in this market, all five of the top-ranked brands were identified as a having effective sales programs and quality products.
There’s room for expansion, however, given that the majority of survey respondents—almost 70%—said they had been called on by just one or two companies in the last 60 days. None of the key decision makers reported receiving calls from five or more companies.