First Data Corp. could expand consumers' options for adding funds to their general-purpose prepaid debit cards by equipping its Star electronic funds transfer network to function also as a reload network.
First Data, a subsidiary of Kohlberg Kravis Roberts & Co., announced a system last week to let cardholders reload Star-branded, general-purpose prepaid cards at participating merchants and automated teller machines. The system also lets cardholders activate and load the card initially and conduct split-tender purchases at the point of sale.
Though the move potentially gives consumers more choices to load Star-branded cards, it shows how different segments of the payments industry view the maturing prepaid card market, said Tim Sloane, the director of the prepaid advisory service at Mercator Advisory Group Inc. in Waltham, Mass.
"The opportunities surrounding reloadable, general-purpose cards [are] getting very real, and as a result, First Data looks at that and says, 'we need a piece of it,' " Sloane said.
Julie Saville, Star's vice president of product development, said First Data is in negotiations with Star-affiliated financial companies and merchant acquirers to add the service.
"We have all the infrastructure in place, and now we're ready to launch," she said.
The service will give Star-branded card users the ability to add funds at the ATM and point of sale terminal using cash, conventional debit cards or paychecks, Saville said.
How funds are added at the ATM will depend on the deployer, she said. "We're trying to get on the ground floor of being the new functionality for ATMs."
On the acquirer side, Star is positioning this service as an easy addition to a merchant's existing POS system.
Prepaid card issuers have expressed the most interest in taking advantage of the reload network, Saville said.
A key challenge in the prepaid market has been convincing people to use their card after they are empty, instead of buying a new one.
Prepaid issuers hope that adding new features and functions to their card products will reduce customer attrition, Saville said, and Star believes the reload system can be another differentiating option for financial institutions.
Sloane of Mercator cautioned, however, that First Data could face some challenges.
From the merchant perspective, managing funds at the point of sale could become a problem, he said.
When a consumer uses a payment card, funds are being transferred from the bank to the merchant through back-end systems. With Star's system, the opposite is happening, Sloane said.
When a customer hands over $100 to load onto the card, "how do you make sure the clerk is really managing the [register] properly?" he asked. "There are all sorts of new fraud vectors introduced from a merchant perspective."
The challenge for ATM deployers will be reprogramming a machine to add the reload functionality.
But Sloane said he believes prepaid card managers will view Star's system as something that "will help initiate loads, keep money on the card and make it easier for consumers to put funds on the card."
