Consider it the beginning of the Next Generation for Card Express Inc.
Literally.
Launched in 1995 by Alan Safahi as a prepaid card provider supporting corporate incentive and promotion cards, CardEx soon plans to venture into the consumer market. And Safahi's son, Sean, will lead the initiative as the firm's new CEO.
In a 1997 interview, the elder Safahi said: "Clearly debit cards are in their infancy, but they are going to get more popular."
Prophetic? Call it an understatement. Mercator Advisory Group estimates the total prepaid market size in 2012 to reach $549.7 billion.
These days, Alan Safahi is taking more of a chairman's role at CardEx. "Strategically, at a very high level he's still involved," says Sean, who became CardEx's CEO on May 1.
Looking back to the Los Angeles-based company's early days, CardEx was one of the first companies to issue open-loop MasterCard prepaid cards, and it launched one of the first virtual prepaid cards in 1999.
"We want to bring that level of innovation back," Sean Safahi tells PaymentsSource. "With our launch into the consumer prepaid space, it's not just the launch of another consumer card but something that will be innovative and different from what's out there today."
Safahi declined to go into specifics, saying only that more announcements will come in the next few months. The core product set will involve reloadable cards with added features, he says.
Indeed, prepaid cards have become full-feature financial tools, "ones that really can replace or compete with basic checking accounts," Safahi says.
Industry observers say Safahi has his work cut out for him, given the increased competition from traditional bank card issuers such as JPMorgan Chase & Co. and his own lack of professional experience in the consumer card market. He just graduated this year from the University of Southern California, where he studied business and cinematic arts.
But Safahi believes he is up to the task.
Relationship-building will be among the chief goals as CardEx ventures into consumer cards. Using Green Dot Corp. as an example, Safahi says only about 20% of the card marketer's products are purchased and later reloaded, meaning most consumers are throwing them out after using up their value.
"We'll be much better positioned for success if we can engage a long-term relationship with consumers, and that's what we're looking to do," Safahi says.
Beyond that, "if you look at the macro level, there's a number of different directions it could go," Safahi says, again without going into detail. "Plastic will be an important part of prepaid, but we're definitely more interested in where it's going next and looking at other technologies and enhancements we could bring."
CardEx processes its own card transactions. It uses KeyBank to issue its commercial prepaid cards, all of which are MasterCards.
CardEx plans to pursue an additional MasterCard issuer to support its consumer prepaid venture, Safahi says, noting KeyBank tends not to delve into consumer prepaid programs. Consumer cards carry more risk than do corporate incentive or promotional cards that tend to have limited or controlled distribution.
For a time, the consumer prepaid market was like the Wild West, where companies could get away with what they wanted, Safahi says. But market pressures have forced prices down, and regulators have put their own pressure on companies to increase the transparency of their fees.
Despite those pressures, Safahi says there's still room to make a profit from offering consumer prepaid cards, as long as the goal is to encourage loyalty and not penalize consumers with price-gouging.
CardEx plans to work off its experience in corporate cards as it looks to succeed in the consumer market. "We have an established brand and experience on the [business-to-business] side, so we'll need to translate that onto the consumer side," Safahi says. "We have a lot of stuff coming down the line that will be innovative and disruptive to the industry."
Safahi declined to provide data to illustrate the size of CardEx's corporate card operations, citing the private firm's policy. However, among the company's clients is Anheuser-Busch, for which CardEx has supported about five large-scale prepaid initiatives, including one that rewarded designated drivers.
"It shows the breadth of what we can do with just one client," Safahi says, noting the brewing company initially had just one prepaid-related promotion in mind until CardEx suggested other ways it could use promotions tied to prepaid cards.
CardEx tends to work only with large companies. "We don't have a lot of one-off program clients," Safahi says.
The company employs about 15 workers, but it plans to hire more as it moves into the consumer prepaid space and address the different needs of that market. Among the positions CardEx plans to add is a company president to handle day-to-day operations, Safahi says. No such position now exists.
Indeed, Safahi tends to get a bit antsy staying with any one task for too long. Among his most recent ventures is cash-transaction network firm ZipZap Inc., which he and his father co-founded (
Today, Safahi is head of product at ZipZap, but he's not involved directly in its operations.
"My management philosophy is to surround yourself with people who are smarter and better than you," he says.
Brian Riley, senior research director and analyst with Needham, Mass.-based TowerGroup, says there is room for another player in the consumer prepaid market, but growing competition from banks in the space could make it difficult for newcomers.
"You're dealing with a commoditized product, so where do you go from there?" Riley says. "[Safahi] better be able to build a better mousetrap, and good luck to him."
Companies such as CardEx and its chief rivals that focus solely on consumer prepaid cards – Green Dot and NetSpend, both of which have been toiling of late as they look for ways to grow – now face the daunting task of competing with Chase's Liquid prepaid card, he says. Chase launched the Liquid product last month (
And Chase's strategy illustrates the advantages banks have in the market, Riley notes. The issuer plans to use its branches to promote and distribute the cards. It can also use cross-sales to create a pricing model that could make it difficult for companies that solely promote prepaid cards to compete effectively, he adds.
Safahi "is a pretty young guy to be given the responsibility to battle against Chase," Riley says. "He has a lot he needs to be prepared for, that's for sure."
Moreover, Citigroup has not played in the prepaid space for some time but could emerge as a major player if it takes greater advantage of its 2007 acquisition of Ecount , Riley says (
"If that happens, it will change the whole market as far as start-ups are concerned," he says. Ecount, which became Citi Prepaid Services, supports customized prepaid products for companies looking to deliver promotions. Among its customers is the loyalty and incentive provider Young America Corp. (
