Realizing Prepaid’s Potential

The major prepaid areas c-store retailers are going to want to watch over the next year are general purpose reloadable cards (GPR), both open and closed loop gift cards, and cards for digital media, game and ring tones.

The economy especially has spurred the growth of GPR products. “You’re going to see more folks buying these to send money, for a student or to teach teens to budget,” said Brent Watters, senior analyst for Mercator Advisory Group’s prepaid service.

Some customers are receiving tax refunds on GPR cards, which is recruiting new customers. “They are retaining about 3-4 % of those cardholders who are using the card then reloading it and using it like a debit card,” Watters said.

In the past two years GPR has been moving up market and is being used more by middle class customers who are being turned down for credit, moving away from credit or looking for a tool to separate funds to help them budget. Some 14% of customers are using prepaid cards for household budgeting, according to Mercator.

“We’ve seen a marked increase in the past year of customers turning from credit toward alternative payment options,” agreed Mark Theobald, spokesperson for U.S. consumer cards for Shell Oil Products U.S. “Our data shows customers who use our branded cards visit Shell-branded sites two to three times more often a month and fill up with two to three times more fuel.”

According to a Mercator survey conducted between May 28 and June 4, 2009, 45% of respondents purchased prepaid cards in the last year and three out of four of them recalled buying specific retailer gift cards. But more than two-thirds of these buyers still are visiting the specific retail store to obtain the card, meaning c-stores can do more to advertise the offering.

The gift card market now is shifting from closed loop to open loop gift cards, which began when some retail stores started going bankrupt due to the recession and customers worried about buying cards for a store that might go out of business, Watters noted.

New technology is helping open loop offer opportunities for businesses, such as the ability to brand cards, restrict cards to a group of specific merchants, or to create partnerships with merchants that give customers a discount when they use the card and give c-stores a percentage of the sale. Companies also can offer rebate cards for specific products. Watters predicted the industry will see more of this in the next few years.

Get in the Game
As customers shun long-term contracts, mobile phone cards are on the rise at c-stores with an actual load of $18.2 billion in 2008, and Mercator forecasts the load will grow to $22.5 billion in 2012. Digital media cards had an actual load of $4.7 billion in 2008 and that is expected to grow to $10.9 billion by 2010. Game cards and ring tones also are on the rise. In 2008 the actual load was $3.3 billion and Mercator expects that to reach $7.7 billion by 2012.

Regulations could also have an impact. “We’re watching the ripple effects of the CARD Act to see if it will result in further government intervention, which could potentially affect consumer preference for the type of payment product they choose to use,” Theobald said. “Shell does not charge dormancy fees, but we anticipate more states will ban them, which should further increase general consumer attraction to gift cards. It’s likely that card sellers also will continue to find ways to maintain current margins, perhaps by instituting activation charges on single use cards, increasing reload charges on refillable cards, or increasing merchant service fees on open loop cards.”  n

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