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How is a gift card different from a prepaid card? Consumers might see little difference between the two types of plastic cards, both of which store funds. But with regulations set to take effect this summer that significantly restrict fees on gift cards, prepaid companies are scrambling to make sure their products are considered general-purpose payment products instead.
May 18
The utility of prepaid cards is growing as marketers develop features that can strengthen their customer relationships.
Although not a new trend, coupling ancillary features such as direct deposit, online bill payment and insurance with a prepaid card has become more common as card issuers and distributors stake out their turf in a market experts say is poised for major expansion.
Internationally, prepaid cards represent a $762.2 billion load opportunity in the coming years based on growth projections in 30 countries outside the United States, according to a report released last week by Mercator Advisory Group Inc.
The Maynard, Mass., firm measured the growth opportunity for the load value on prepaid cards based on demographic and economic factors in different countries, using actual U.S. prepaid card load figures from 2008 as a benchmark. The report covers government, store gift, payroll, general-purpose reloadable, incentive and campus prepaid cards.
The projection is more than triple the $209.1 billion that was actually loaded on to cards in those six categories in the United States in 2008, the report said.
"It comes down to who is in a position to capture the customer first," Tim Sloane, the director of Mercator's prepaid advisory service, said in an interview Monday. "Where is your product being presented to the consumer and in what venue is it being presented? … Today being able to find multiple avenues to that consumer that hit them at the right time with the right value proposition, which more and more includes not just a prepaid product but includes some social aspect as well, is the name of the game in getting additional market share."
Adding features on top of a prepaid card's core payments function can help reduce churn, a constant challenge for providers of such cards, Sloane said.
For example, on Monday the prepaid card distributor Plastyc Inc. announced a feature that lets cardholders reload minutes on a prepaid phone through the company's iBankUP online spend-tracking portal.
The New York company's service, which is offered through a partnership with the Singapore airtime network provider TransferTo, lets users input their prepaid phone number, select their carrier and select the number of minutes they want to add to their mobile phone accounts and pay for it using their Visa-branded card. The card is issued by MetaBank, a subsidiary of the Sioux Falls, S.D., bank holding company Meta Financial Group Inc.
Plastyc is offering the service to U.S. users who have a prepaid phone with AT&T, Verizon, T-Mobile and Boost Mobile and in 30 other countries through various carriers. Customers can also use the service to add minutes to a friend or family member's prepaid phone.
"We noticed that a large share of the prepaid account holders that we have also have a prepaid cell phone for pretty much the same reason," which is to avoid unexpected fees they might see with traditional debit and credit card products, said Patrice Peyret, Plastyc's chief executive.
"The product is more predictable and has less fees," he added.
Plastyc isn't the first company to offer the ability to load minutes on to a prepaid phone directly from a prepaid card, Sloane said.
"If you can link a prepaid card in a very direct way to the mobile service that the consumer has," it could create "stickiness" for the customer, Sloane said.
"If I'm already using one of those carriers and I happen to also be using Plastyc and see the opportunity to link the two together, maybe with some savings to myself, that's taking two relatively important parts of my life and tying them together. I think that would likely reduce churn on the card."
