Aiming to create a mass market for a newish category of plastic payment card, several banking and nonbanking companies have recently introduced prepaid products under the Visa and MasterCard brands that function as cash and can be used to buy goods in the real world or on the Internet.
The banking companies, in-cluding KeyCorp and the pointpathbank.com subsidiary of Synovus Financial Corp., that are pitching these cards are marketing them either as "gift" cards that let people give an all-purpose plastic gift certificate or as convenient spending vehicles for people who do not have other bank cards, for example, teenagers or people who do not qualify for credit.
The prepaid cards emulate the gift cards offered at many retail stores. For the past year or two mass merchandisers such as Target Corp. and Federated Department Stores have been promoting attractively packaged gift cards that customers can buy for a modest fee, usually around $5, and recipients can spend in the designated stores.
In the same way that private-label retail cards gave rise to general purpose bank cards, the store gift cards have led to bank-issued equivalents that are neither debit nor credit cards.
The prepaid cards have several disadvantages. Consumers must pay a fee for them, which amounts to paying $5 or $10 for the privilege of spending a specified amount loaded on the card. Most of the cards are not reloadable yet, nor can they be used to withdraw cash at an automated teller machine.
Few retailers stock the cards, and using them on the Internet usually requires typing in elaborate PINs. And though some companies will track the balances on their cards and replace lost or stolen cards (for a fee), in most cases losing a prepaid card is like losing cash.
The biggest obstacle to acceptance may be that "they require that you go out and conduct a transaction in advance of an actual purchase," said Ken Kerr, a senior analyst in Durham, N.C., for GartnerGroup Inc. "Where can you spend it? How much do you want to plunk down on a card that you might only be able to use on five Internet sites that you don't have any interest in?"
On the plus side, the issuers of these cards, which generally record minimal information about their owners, say their products appeal to people who fear their privacy will be breached or their credit card account data stolen if they buy goods on the Internet.
The issuers also say the prepaid cards, which work everywhere Visa and MasterCard are accepted, are good for people who do not have credit cards or those who worry about the fees and interest charges associated with credit cards.
Several card companies have introduced products specifically for teenagers - Visa's Buxx cards and American Express Co.'s Cobaltcard are two examples - but the prepaid cards seem to be aimed at a wider market in an attempt to establish demand for a new category of card that could add to the issuers' revenue stream. A role model is the prepaid telephone card, which has become omnipresent and is particularly popular among people who lack long distance telephone service.
The cards issued by KeyCorp, whose partner is a private company in Toledo, Ohio, called PrivaCash.com Inc., are specifically modeled after telephone cards. PrivaCash MasterCard customers can keep their identities away from Internet merchants, and the company emphasizes that the card is not linked to any bank account or personal financial information.
"It's as close to cash as you can get because it's not connected to any person's private information," said David Sutton, executive vice president at PrivaCash.
Doug Blasiman, president of PrivaCash, said the cards are "very different" from teen cards, which require "parents to have an account set up specifically for their child in their name and linked to the parents' account."
However, distribution is a problem for PrivaCash. So far the cards are available at Andersons, an Ohio superstore chain; a few other retailers; and in some community bank branches (though not KeyCorp's). People who buy them can partially activate the cards where they are bought but must complete activation either on the company's Web site or through a toll-free number.
PrivaCash sells the cards in $25, $50, and $100 denominations, for prices of $4.95, $5.95, and $7.95, respectively. The cards are packaged with discount coupons from various merchants, which are meant to offset the card's price.
Unlike cash, PrivaCash cards expire after six to nine months. If the funds are not used up within that time, a cardholder can contact the company and get a refund - which comes with a service charge.
The Visa gift card introduced recently by pointpathbank, an Internet-only bank, works in much the same way, only it is being marketed specifically as a present, and people can send personalized greeting cards with it. People who want to get the card can register at the pointpath.com Web site, and the bank will send e-mails to their friends suggesting that they buy one as a gift.
Pointpath's "gift card reminder calendar" lets people type in dates of special occasions, and the company will send e-mail reminders of the event.
"We allow our gift card clients at pointpath to receive real-time inquiries of their balances and previous transactions online," said David Mize, director of Web development at pointpath.
Ecount of Conshohocken, Pa., is pitching its MasterCard-branded cards to companies - which would distribute them as incentives or rewards - rather than consumers. Ecount's partner in this venture is Bank One Corp.
Other companies are introducing similar products without the Visa or MasterCard imprimatur. InternetCash Corp. of New York has three prepaid card products that let people buy goods online anonymously. Though the cards can be bought in any of 6,000 stores, they can only be used on the Internet.
Unlike PrivaCash, InternetCash does not charge a fee above the card's face value. The company instead charges the merchant a percentage of the transaction.
"Our network was built from the start for the Internet, whereas Visa, MasterCard, and Amex were built for brick and mortar," said Benjamin I. Reddy, executive vice president and cofounder of InternetCash.
When an InternetCash cardholder goes to the checkout page of a Web site and clicks on the InternetCash logo, a window pops up, and the consumer enters a card number and a personal identification number. InternetCash verifies the information and sends the merchant a digital signature guaranteeing payment. "The merchant never sees the consumer's card number," Mr. Reddy said.
This market niche has already had a casualty, Cybermoola of San Francisco, which went out of business in December after its venture capital dried up. Eric Freeman, the former president and CEO of Cybermoola, said its card was on sale in about 250 supermarkets but could only be used at about 50 online sites. Each transaction generated revenue but not enough to offset the company's fixed costs, he said.
Paul Jamieson, senior analyst for banking and payment services at Gomez Advisors, an e-commerce consulting firm in Waltham, Mass., said: "The Internet has been littered with a number of firms that tried to create a proprietary payment system and failed because they were unable to create a critical mass of merchants or consumer use. You need one of the two. If you don't have either, it's difficult to get the ball rolling."
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