Predicting Prepaid Growth

The prepaid card market continues to grow, and consumers are purchasing cards more often at “prepaid malls” inside convenience stores.

“Rather than going to the actual store for a (Gap, for example) gift card, they go to a 7-Eleven and get the card for that store there. For c-stores that can be significant since many have the prepaid malls within their stores,” said Ben Jackson, senior analyst at Mercator Advisory Group.

One predicted trend for 2011 is increased use of muti-merchant prepaid cards—for example, dinner and a movie cards that can be used to buy both movie tickets and dinner at a restaurant. “The advantage is you can offer gift experiences like the dinner and a movie, or you can offer multiple retailers on one card, which means you don’t have to stock as many prepaid cards,” Jackson said.

Digital content cards, from gaming to music, continue as a trend in 2011. “These cards give customers the ability to give someone a physical gift for something that would otherwise be a virtual good,” Jackson said.  “Many people who use these cards don’t have credit cards, such as kids who want to play online games.”

Closed loop gift cards continue to outpace open loop cards, which are on the rise. But new rules could affect growth in 2011. “The Card Act and the Durbin Amendment are going to put some pressure on open loop gift cards,” Jackson warned. “The loss of interchange and new restrictions on how the cards can be marketed, disclosures and when they can expire will put a little bit of pressure on the margins and profitability of these cards. It’s a little too soon to tell what is going to happen, but we think it could slow things down.”

Restock and Reload
General purpose reloadable (GPR) cards gained more attention in 2010, and Mercator expects banks to begin offering them as well.  Jackson advised c-stores to market GPR cards separately from gift cards and to ensure customers know the difference.

Another trend worth noting is that retailers, such as Sears, are starting to offer their own reloadable cards, often pairing them with social media platforms and allowing customers to register their cards to get discounts.
TravelCenters of America (TA) has seen GPR cards at its stores take off and grow into the most popular type of  prepaid card at its stores. “Today we sell GreenDot, nFinance and NetSpend, which are the three big players with GPR products” said Kathleen Stobierski, contracts and lease manager for TA. “Customers use the reloadable debit in place of a credit card to pay bills online. This is perfect for our customer segment who typically don’t have credit cards.”

In 2011, the chain is also augmenting its selection of closed loop gift cards.

In addition, TA currently is rolling out host-to-host communications, which will allow cashiers to ring up prepaid cards right at the POS instead of   having to swipe it again at an adjacent terminal. “We think the new one-step process is going to have a positive impact on our business overall, reducing cashier errors and processing time,” Stobierski said.

Forecasting Prepaid

—The Total Prepaid Market size in 2012 is now forecasted to reach $549.7 billion, according to Mercator Advisory Group’s Prepaid Market Forecasts 2010 to 2013.

—The petroleum industry is now completely engaged in prepaid cards—this segment grew by 15% in 2009. Mercator predicted that soon-to-be released 2010 results will reveal this same growth rate, and an increase of 1% annually through 2013.

—While Mercator had predicted growth of 17% for the games and ring tones prepaid segment, it instead grew by 13%, most likely due to the economy. It is predicted to grow by 25% through 2013.

—The open loop prepaid market as a whole is expected to almost equal the closed loop market in 2011 and should exceed closed loop in total dollars loaded in 2012 by more than $60 billion thanks to the influence of the banking industry.

—Open loop gift cards experienced a growth rate of 31% in 2009, down from 55% in 2008. Mercator expects this growth rate to continue in 2011, but to drop in 2012 to 25% and to 20% in 2013.

—The digital music and movies market grew by 24% in 2009 and is estimated to continue at about that rate through to 2013.

Source: Mercator Advisory Group’s Prepaid Market Forecast 2010 to 2013

  • http://www.facebook.com/PrinetaPaymentConsulting Roxxy Woods

    The growth in this industry is impressive.  Now prepaid is the #3 selling category for most c-stores.  Get Set Up to Sell Prepaid Cards for Free

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