Serving the Unbanked

As the economy worsened, the number of adult Americans without bank accounts grew exponentially—and the use of prepaid cash cards climbed to new heights as well.

Directo, a company that tracks pay cards to unbanked workers, reported that the recession has sent the number of unbanked Americans soaring to about 50 million, well up from the estimated 28 million unbanked consumers in 2007, and analysts estimate prepaid card purchases, which totaled $4 billion in 2008, will rise to $7.2 billion in 2009 and $10.8 billion in 2010.

“Over a lifetime, the average full-time, unbanked worker will spend more than $40,000 just to turn his or her salary into cash,” wrote former President Bill Clinton and California Gov. Arnold Schwarzenegger on the plight of those living outside the financial mainstream. This forecast presents retailers that sell cash cards and financial services, not otherwise easily accessed by those without a bank account, with a huge opportunity to make money.

The opportunity includes everything from prepaid Visas and MasterCards to cell phones, phone cards and even gaming cards.

Prepaid Becoming More Affordable
Brad Lemoine, marketing director of Monroe, La.-based U-PAK-IT Corp., a 40-store chain that is a division of Evans Oil, said his bestselling cards are AT&T’s $4.99 and $9.99 cellular replenishments, which the phone company took off the market for a while.

“We had a dip in our cellular replenishment until they brought those cards back,” Lemoine noted. “Now, sales are better than ever. Also, Netspend prepaid VISA cards dropped in price, making them much more affordable, which we think will boost sales.”

When it comes to boosting cellular replenishment card sales, the best advice Lemoine can give other marketers is to make sure you’re selling prepaid phones as well. “Handset sales go hand-in-hand with replenishment sales,” he said. “Selling handsets built our phone card customer base.”

What stores cultivate when selling handsets is repeat business because customers will almost always return to buy their cellular replenishment cards and phone accessories, such as car chargers and cell phone holders, regardless of which carrier they use. “Our handset sales have really driven our replenishment sales,” Lemoine said.

Stores that do not actively pursue handset sales never really achieve the kind of prepaid customer mix that spells success, Lemoine said, adding that the handset/replenishment hookup is also a great way to develop customer loyalty.

“We’ve offered $30 handsets with a $30 replenishment coupon,” Lemoine said. “The handset was free, but we didn’t really care if we made any money on the handset because we were after replenishing that customer forever.”

Employees Boosts Prepaid Sales
U-PAK-IT stores began selling handsets about 10 years ago, often selling customers their very first phone. The company continues to offer new generations of phones with more features that provide another incentive for coming back to us. Many retailers are scared of the handsets because of the possibility of theft, Lemoine noted.

However, handsets don’t work until they are activated, which effectively removes the incentive to steal them.

To spike sales even further, Lemoine paid employees a cash incentive: $5 for every handset they sold. Employees really got behind the program, and once they bought a handset for themselves, it was very easy for them to demonstrate to customers how to use it. “The whole idea is drawing customers back to your stores, and it’s why we have one of the highest accounts with our card provider,” Lemoine said.

Jim Callahan, director of marketing for Geo. H. Green Oil Inc. in Fairburn, Ga., which recently added Western Union money orders to both of its truck stops and now offers full-service Green Plaza check cashing centers, said his prepaid card sales experienced a healthy growth rate in 2009, and he expects that 2010 will be even better.

Though his stores do not yet offer reloadable prepaid credit cards, Callahan, who also operates a c-store consulting business, believes that this will be the fastest growing portion of the prepaid card business. Typically, he said, the “reward is somewhere in the vicinity of 30% of the $3.95/$4.95 fee, so gross is in the $1.20 to $1.50 range.”

However, Callahan noted, when you factor in the risk element—fraud, scams, employee temptation and the unknown element that the Patriot Act brings—that’s not a whole lot of reward versus the risk. “However, having said that, they offer a method of transferring and sending money that is less expensive than Western Union when sending hundreds of dollars,” he said.

Like a regular Visa card, a customer can order two with the same account number, send one to a friend or family member in another country, load the other one in the U.S. and pay only one initiation fee, Callahan explained. Unlike Western Union, however, many of the prepaid cards will only allow $400 to be put on at a time, with the exception of companies that use them for payroll cards.

Callahan said that, overall, these unbanked customers make up the largest percentage of his stores’ financial services customer base by far, and that the largest portion of these customers are Hispanic.

Game On
Lemoine is also bullish on the category because of all the potential opportunities he sees. Marketers must make a point of staying on the cusp of what’s available in the prepaid segment.

“Our provider seems to be always on the cutting edge,” Lemoine said. “They’re coming out with a lot of Internet game cards, which I think is going to be the next big wave of prepaid. I hate to make a pun, but in this instance, our provider is really ahead of the game.”

In fact, there are quite a few cards and  specific games that customers can buy, then activate and play online—Spare Change, for example, comes in $5, $10 and $20 denominations. “Game card designations may not mean much to you now,” Lemoine said, “but before long, these cards will be household names, especially as many buyers use them to buy games on Facebook and MySpace.”

U-PAK-IT is hardly alone in this area. 7-Eleven, last year, took the plunge into video game sales after dabbling in it with successful Slurpee beverage promotions. The Dallas chain introduced a lineup of seven of the top videogame titles for sale, as well as one of the most comprehensive selection of prepaid gift cards for another growing gaming phenomenon—Massively Multi-player Online Games (MMOGs).

“Videogames aren’t just for kids anymore, and they’re not just sold at big box and game stores either,” said Michael Jester, 7-Eleven category manager for gaming and electronics. “We can compete with the major players and offer consumers a more convenient place to purchase games and accessories.”

The number of prepaid game cards available at 7-Eleven stores has expanded to about 20 different cards in varying denominations. CSD


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