In a move that would help its issuers establish stronger relationships with the unbanked, MasterCard Inc. is developing a system to reload prepaid cards and is poised to announce a distribution partnership.
The Purchase, N.Y., credit card company is in talks with Interactive Communications International Inc., an Atlanta company that markets prepaid products, and it could announce as early as next week a deal that would let people add funds to MasterCard-branded prepaid cards, sources close to both companies have told American Banker.
Visa U.S.A. has already developed a reloading system, and it announced a similar distribution agreement last week with Safeway Inc.'s prepaid card unit, Blackhawk Marketing Services. Executives and analysts said the sudden surge of activity in the reloadable card segment indicates that card companies view reusable cards as a key retention tool for people without ties to banks.
Ronald Hynes, MasterCard's vice president of prepaid products in the Americas, said that many people discard prepaid cards once they are used up but that enabling cardholders to reload, and reuse, a card can lead to a long-term relationship with the issuer. And like Visa, MasterCard, he said, is aiming its reloadable cards at the unbanked and underbanked. "That's the core demographic that we are building the feature functionalities for," Mr. Hynes said.
He would not discuss any potential agreement with InComm but confirmed that MasterCard expects to make the reloading function available "very soon."
Kristi Turner, InComm's senior vice president of marketing, said that because the MasterCard and Visa networks reach so many retailers, their entry into the reloadable segment would give the feature's availability a rapid boost.
"We are confident that you are going to see an emergence of national reload networks," she said. She declined to "comment on rumors" about negotiations between her company and MasterCard. InComm's prepaid cards are available at 145,000 retail sites, though it is unclear whether people would be able to reload them at all of those places. The company also makes point of sale terminals.
Analysts agreed that making it possible to reload prepaid cards through the extensive Visa and MasterCard networks would probably make cardholders more willing to keep their cards longer and use them more often.
"From an issuer's perspective, reload is critical because it builds a relationship with the cardholder," said Phillip J. Philliou, an independent payments consultant.
Gwenn Bezard, a research director at Aite Group LLC in Boston, said that MasterCard and InComm would make a good pairing; he said he had not heard that a deal was in the works between them. InComm has numerous merchant relationships, "is very entrenched in the reload network, and is very technology-focused," Mr. Bezard said. "In the end you need a company that has connectivity with merchants in the reload space."
Until recently, Green Dot Corp., an issuer of prepaid products, operated the only reloadable card network that was open to other issuers. InComm, for instance, used the Green Dot network to reload its Mio prepaid cards. Ms. Turner said InComm recommends that retailers charge $9.95 to activate Mio cards and $4.95 for each reloading. Mio is available on the MasterCard network and will be available on the Visa network next year. InComm offers another reloading option through its Fast Card - people can buy a prepaid Visa card from retailers and then use a PIN to add to it.
Green Dot has offered a reloading option on its own cards since it entered the prepaid market in 2001. Two years later it began soliciting other issuers to join its network.
"We realized that we already have done this for our cards, why not open it to anyone's card," said Steven Streit, Green Dot's president and chief executive, "and that's when the network started to flourish, when we actively went to other issuers and said 'we already have this network' and said 'would you like to take advantage of it?' "
The company offers the broadest retailer distribution for reloadable cards issued by it or its partners. It charges $3.95 or less for each reloading transaction on cards it issues on the Visa, MasterCard, or Discover Financial Services LLC networks.
Green Dot's primary market is people who are unbanked or underbanked, and Visa said it is hoping to reach the same market. The association has estimated that people lacking significant banking relationships have about $1 trillion in annual income.
Visa completed its reloading system, ReadyLink, in March, and its deal with Blackhawk is its first reloading partnership. Blackhawk markets 400 prepaid cards at thousands of retailers, but cardholders can reload them only at the 1,550 grocery stores operated by Blackhawk's parent company.
Todd Brockman, Visa's senior vice president of prepaid cards, said the association is talking to issuing banks and merchants and expects to announce additional partners in the first quarter, including a deal to support the cards used to distribute unemployment benefits in some states.
"We certainly anticipate Visa ReadyLink growing in 2007," Mr. Brockman said. "As we talked to existing prepaid cardholders - people with payroll cards and government disbursements - and really looking at the underserved, reload was the most important enhancement they asked for."
Tim Sloane, a research director at the Boston firm Mercator Advisory Group, said prepaid issuers would see less attrition if people could hold on to the cards that are already in their wallets, instead of discarding them after using up the funds. Consumers have already demonstrated a willingness to use reloadable cards like prepaid mobile telephone accounts.
Other companies that offer reloading are MoneyGram International Inc., which charges people $2.95 to reload funds on its Gold Prepaid MasterCard at its offices, and Morgan Beaumont's Sire network, which also uses the MoneyGram reloading network as well as the MasterCard and Discover networks.
Visa and MasterCard's entry into the reloadable-card space has spurred thinking at Discover. Tom Crowder, its director of network strategic development, said in interview that the Riverwoods, Ill., unit of Morgan Stanley is in the "investigative stage."
"Any time our competitors have an announcement, it's something we would be looking at," he said.
