Credit card issuers are beginning to see value in prepaid cards.
At least two major card issuers, American Express Co. and First USA, have begun selling prepaid cards to their credit card customers.
The products are here to stay, but they also have seasonal appeal. Both companies describe them as card-based gift certificates that make perfect holiday presents.
American Express has a new business division devoted to marketing these cards. First USA, a unit of Bank One Corp., is seeking a patent to protect its prepaid card system.
Prepaid cards gained popularity as a way to pay for telephone calls, then the retail community caught on. Large store chains like Neiman Marcus, Barney's, Blockbuster, and Kmart Corp. have begun selling prepaid cards as an alternative to paper gift certificates. Kmart's year-old gift card doubles as a telephone card.
"We are still sorting out what the opportunities are in prepaid cards," said Diane Efthimides, vice president of stored value development for American Express. "We have barely scratched the surface."
Amex gift cards, which are being advertised through statement inserts, can be used only at participating merchants. The company's gift card group has signed up Chanel boutiques and Tower Records stores nationwide, and others are in the pipeline, said Ms. Efthimides.
American Express handles the customer service and transaction authorization process. Ms. Efthimides said the program promises a "deeper relationship" with merchants, as well as fee income and additional brand exposure from having the company logo on the back of the cards.
First USA is taking a different approach. Its prepaid cards come with a Visa logo, so they are not limited to a particular merchant. Moreover, First USA has a patent pending to protect its prepaid card technology. A bank spokesman declined to say what the patent covers.
The First USA Gift Card is also being promoted through statement inserts; customers can use their First USA credit cards to buy one. The advertising material suggests giving the cards to college students, or to nannies who handle household shopping.
Cards start at $50, and cards of less than $200 cost $5. Cards with $200 or more value are free. Refills cost $2 each, or $10 on short notice. The order form includes an option to bill cardholders monthly for refills.
First USA clearly has fee income in mind, but industry experts also see a marketing opportunity. First USA is putting its "brand and products in the hands of new customers," said Frances M. Dale, president of Entandem Inc., Sterling, Va.
Both Amex and First USA "have done something good for the person purchasing the card, but they are also reaching the recipients of the cards," said Ms. Dale.
A few months ago First USA began marketing prepaid telephone cards loaded with an hour of calling time. The bank took the unusual step of sending the cards out unsolicited. When activated, Platinum Connect cards can also be used as credit cards.
Even Internet-based companies are jumping into the prepaid card arena. C/Base Inc. of Philadelphia said this week that it will launch a virtual prepaid gift certificate for on-line shoppers by Nov. 27. The certificate can be used on the Internet at any Web site that accepts credit cards.