Prepaid Sales Surging

Whether it’s phone cards, credit cards or prepaid gaming cards being promoted by 7-Eleven, prepaid sales are hot, and retailers would be wise to get in on the action.

For example, c-store operators with a high number of ethnic customers could capitalize on the growing reloadable cell phone card market. The top destinations for overseas call are Mexico, Jamaica and Haiti.

Domestically, sales of prepaid mobile phone cards surged more than 30% in the 12 months ended April 30, 2009.

New products are also driving the category. In addition to the prepaid gaming cards offered by 7-Eleven, a unique genre of payment products is emerging that combines elements of prepaid cards with a small dollar credit line. Known as hybrid credit/prepaid cards, these products can be loaded via cash or direct deposit, as well as by a payroll advance loan. While generally providing short term, expensive credit, most hybrid credit/prepaid cards are positioned to provide credit at lower cost than payday loans.

Equally popular are sales of gift cards and proprietary fuel brand cards, such as BP’s ARCO PumpPass.

“The BP gift card had it’s best year ever in 2008,” said David Van Wiggeren, BP’s card marketing manager. He noted his company’s stored value card activations have realized a very modest gain over the 2008 year-to-date. However, he does not expect this trend to continue because sales of fuel-related stored value cards are closely tied to the retail price of fuel. “Since fuel prices are considerably lower this year than last, sales of BP’s stored value cards will likely decline,” he said.

BP promotes gift cards in conjunction with local retailers who offer the cards as a premium in their loyalty and rewards programs, and plans to do on-site card promotions during the last two months of the year.

Demand for open-loop prepaid gift cards created a $5 billion market in four short years, said Tim Sloane, director of prepaid advisory services at Maynard, Mass.-based Mercator Advisory Group Inc. But if pending legislation passes, it could affect sales at  c-stores that sell them. Stores in some states could also see a dramatic increase in the prices consumers pay for gift cards.

The legislation was included in a bill last month approved by the U.S. House of Representatives that calls for a sweeping reform of the credit card industry. The bill might also permit states to pass stricter gift card regulations than the federal ones, according to Sloane.

The higher cost will occur because gift card suppliers will need to create a unique portfolio for each state that with different pricing and fee constraints. In fact, some gift card companies are refusing to ship to certain states. With reduced competition, consumers in these states will pay higher prices and choose from a smaller selection.

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