Regulations will have a big impact on prepaid cards in 2017—but exactly how depends on whether the Consumer Financial Protection Bureau’s new rules requiring upfront disclosures and consumer protections, set to go into effect Oct. 1, 2017, are overturned or upheld.
“If the rules are upheld, c-stores should expect prepaid card owners to replace many of the cards in the racks today as providers ensure cards with the latest disclosures and packaging are the only ones for sale,” said Ben Jackson, director for prepaid advisory service, for Mercator Advisory Group, a payments consulting company. “If the rules are overturned, providers will want to sell through the stock they have.”
The prepaid market is maturing. General purpose reloadable (GPR) cards remain popular with the unbanked and underbanked, but growth may slow in 2017 due to a mature market, said Jackson. Closed-loop gift cards remain popular and may see growth if more retailers connect them with loyalty programs and mobile apps. Open-loop gift cards will grow, but that growth will depend on the economy.
Digital cards are also gaining market share.
CHALLENGES AHEAD
“The question for c-store operators is where their racks will fit into shopper’s habits as more cards are bought, given and redeemed online,” Jackson said. It’s an issue retailers are already pondering.
Beaverton, Ore.-based Plaid Pantry with 107 stores, offers an array of prepaid cards, including third party gift, gaming, long distance, open loop gift, reloadable and wireless. Plaid Pantry merchandises its prepaid cards using a four-sided, two-tier spin rack atop a free-standing beverage cooler directly across from the transaction area in most stores.
“Reloadable debit and gaming are far and away the leaders in this category,” said Mike Nelson, category manager for Plaid Pantry. “I would expect the category as a whole to be close to flat (in Q1 2017), with gift, debit and gaming growing and wireless and long distance continuing to fall, as they have been since early last year.”
Steve Magestro, president, Mad Max Convenience Stores, expects the category to dip in 2017 and beyond.
“With smartphones, you can order online, bank online, transfer money, so it is only natural you would be able to do more with this single item and in turn not need to buy prepaid cards,” Magestro said. “As more people shop online prepaid will decrease even more because you’re paying (via) online shopping. No need for prepaid cards then.”
But until that day arrives, Mad Max sells BP, CITGO, Mobil, Shell and Clark cards at its 12 locations in Wisconsin.
“With so many stores selling prepaid cards and so many of those top tier cards not available to our industry, we only sell branded gift cards in our locations,” Magestro said.
The chain continues to seek a company that can offer a Mad Max-branded gift and loyalty option in one card that works across its various point-of-sale platforms.
Jackson suggested that if c-stores can facilitate adding money to cards for coffee shops and online games, they have an opportunity to reach an underbanked market that is often overlooked—youth who do not have access to credit cards and debit cards, but want the ability to buy things online and through mobile channels.