Rewards programs long have been a staple with many credit and debit card products. And now prepaid debit card providers are attempting to retain their cardholders using similar incentives.
NetSpend Holdings Inc., for example, plans to add prepaid debit card rewards through an agreement with Cardlytics Inc. the companies announced Feb. 4. The program, called NetSpend Payback Rewards, is scheduled to roll out this quarter, according to a press release.
Cardlytics’ system sends merchant deals to cardholders based on their transaction histories and geographic position. Cardholders activate the free rewards online through NetSpend’s website and use their cards to make qualifying purchases at the specified retailers.
Cardlytics uses a “pay-for-performance” revenue model in which the merchant only pays the company a fee if a consumer makes a purchase using an offered reward.
NetSpend is the third prepaid partner for Cardlytics, which also has agreements with FSV Payment Systems Inc. and AccountNow Inc. (
NetSpend did not respond to multiple requests for comment on the agreement.
“You know [rewards] work” with credit and debit card programs, says Brian Riley, a research director in the bank cards practice at TowerGroup. So tying them to prepaid cards to attract cardholders could work, too–if done carefully, he says.
“To the extent that the program is constructed with meaningful rewards, it could have a very good play” for NetSpend and other prepaid card providers, Riley says.
A company such as Cardlytics can help providers invest in a rewards program that does not rely on the marginal returns often associated with prepaid. “Reinventing the wheel when you have companies with specialized services doesn’t make a lot of sense,” Riley says. “So the most prudent way is to partner” with those who do.
Indeed, Atlanta-based Cardlytics believes it has positioned itself as that company.
Cardlytics’ partners “are looking for ways to provide rich rewards to their customers in an environment where the economics just aren’t there to do that through traditional methods such as interchange or fees,” Lynne Laube, Cardlytics president, tells PaymentsSource.
Cardlytics’ offering has the potential to become more attractive to banks and prepaid card providers in light of recent regulatory changes, particularly the Durbin amendment to the Dodd-Frank Act that calls for capping debit card interchange at 12 cents per transaction.
More banks might offer prepaid cards if they decide traditional debit cards no longer are profitable, some observers believe. Reloadable prepaid debit cards are exempt from the Durbin amendment.
“Those pressures [from regulations] will have impact on core debit relationships and have an impact on prepaid relationships,” Laube says. “You’ll see more banks looking to alternative ways to meet customers needs.”
Meantime, Cardlytics will continue to bolster what it views as a network of sorts.
“We’re building a new network by which retailers can reach consumers through their bank relationships,” Laube says. “And to build that network, you have to create scale through the financial relationship.”
Retailers also are an integral part in building that network, she adds. Cardlytics has relationships with more than 100 merchants, ranging from as large as McDonald’s Corp. and Macy’s Department Stores Inc. to as small as regional coffee shops.
Typical merchant offers are about 10% off on specific items, but offers have gone as high as 30% cash back on certain purchases, Cardlytics says.
Merchants craft offers based on individual cardholders’ past purchases, with the goal of stimulating spending in specific categories. Most offers are good for both in-store and online purchases, according to Cardlytics.
“This works really well on whatever vehicle consumers use for their everyday spend,” and that includes prepaid cards, Laube says. “Companies like NetSpend have a belief their customers are going to engage heavily and save a lot more money through this network,” she adds.
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