The Shape of Things to Come in the Prepaid Market

prepaidFor Tom Gilbert, single-digit percentage growth is continuing to push multi-product gift card kiosk sales. And the president of the Royal Performance Group division at Royal Buying Group Inc. sees more changes coming.

“As point-of-sale (POS) technology becomes more prevalent, prepaid loyalty/reward initiates become more available, either as a standalone product or as an added feature to an existing prepaid gift card,” Gilbert said.

But when it comes to open-loop cards, convenience stores still represent a sizable potential market for program managers. Open-loop loads are expected to reach $281.7 billion in 2013, according to the Mercator Advisory Group’s Prepaid Market Forecast 2011–2014 that views the prepaid market slowing down as regulatory and economic issues and other factors continue to shape the market over time.

“Open-loop program managers are interested in the convenience store space, as evidenced by the number of announcements from companies like PayPal over the past two years or so saying that they have begun selling in stores like 7-Eleven,” said Ben Jackson, senior analyst at the Mercator Advisory Group. “Companies like NetSpend have also put their reload networks in place in convenience stores.”

Filling a Consumer Need
Prepaid cards can be tied to financial services, such as remittance and bill payments, but that tie-in can mean that they may compete with stores offering the same services. Judging from the data reported from 2009- 2011, open-loop cards are continuing to move in a decided upswing. Jackson sees open-loop cards gaining momentum as businesses and governments see them as a way to reduce paper checks. Plus, they are alternatives for people who have had bad experiences with bank accounts.

Some prepaid card customers also want cards for budgeting or as a safety net instead of using their credit or debit cards when they’re making online purchases. “With the entrance of large banks like Chase, more people are being introduced to prepaid cards as a financial tool,” Jackson said.

Reloadable cards can be an opportunity for c-stores if they know that their customers want or need them. Convenience stores also need to recognize the needs of customers who shop in their stores and tailor prepaid card offerings to match. For some, reloadable prepaid cards work well; for others, phone cards or gift cards may work better.

Jackson views reloadable cards as an option that generates repeat business from customers who come back to the c-store to reload their cards. “These people will likely buy something while in store, so reloadable cards might lead to incremental sales,” he said.

Prepaid Strategy
When it comes to developing a prepaid strategy, the bottom line for convenience stores is developing one that benefits their customers. “It sounds cliché, but c-stores need to know their customers as best they can to tailor offers to their base,” said Ben Jackson, senior analyst at the Mercator Advisory Group. “They should also consider ways they can work with prepaid card suppliers to drive more traffic into their stores through things like reloads and loyalty programs.”

Mercator Advisory Group predicted that prepaid sales will continue to rise at an impressive clip. According to the group’s “Prepaid Market Forecast 2011 to 2014,” closed-loop in-store gifts were expected to grow at a 5% annual rate in 2012, 2013 and 2014.

Open-loop sales are expected to report loads totaling $281.7 billion for 2013, falling short of its forecast of $421.1 billion last year.

In 2014, open-loop sales are projected to push ahead of closed-loop loads because of the boost in dollar volume loaded onto closed-loop cards. Figures from 2006-2014 reflect compound annual growth rates (CAGR) for the open-loop market, declining somewhat to 34.5%. During the same time frame, the CAGR figures for the closed-loop market increased slightly to 8%.

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