IMGCAP(1)]
By now, it should be no secret that prepaid rebate cards represent one of the fastest-growing rebate vehicles in the history of sales promotion. Understanding why that is can lead to successful penetration of this lucrative and explosive market.
Since the 1970s, rebate vehicles have evolved from coins, to cash, to bearer checks and to personalized checks. As average rebate values climbed from less than $1 to more than $100, sending a rebate in the form of a self-mailer or postcard check eventually no longer made sense.
In the early 1990s, the volume and value of rebates began to grow exponentially as electronics retailers recognized the benefit of using rebates for everything from computers to flash drives. Electronics was the first category to realize that a well-featured rebate could result in double-digit or, sometimes, triple-digit sales growth during the promotion period. They were followed quickly by office supply, computer hardware and software, and the largest category of all: wireless.
Despite a few marketers opting out of rebates because of sub-optimal oversight, the market is still robust. I estimate that approximately 400 million rebates will be issued this year with a face value in excess of $6 billion.
For prepaid suppliers to secure a portion of this business, it is critical that they access insights that will help them understand fulfillment-supplier perspectives and the motivations of both retail and manufacturer-rebate sponsors.
As most prepaid stakeholders are aware, setting up a rebate program usually begins with a contractual agreement between a fulfillment supplier and a rebate sponsor, which could be either a manufacturer or a retailer. The relationship typically begins when each party agrees on what the rebate "vehicle" will be–for instance, a rebate check or a prepaid rebate card.
Some of the benefits of selecting a prepaid card include higher levels of consumer acceptance and the ability of a rebate sponsor to emblazon the card with its identity. Moreover, unlike prepaid rebate cards, rebate checks usually are cashed and immediately forgotten.
Cards, which are easy to use and convenient, also can be used multiple times, hence the marketing benefit that they continuously remind consumers who gave them the reward.
Reloadable cards are ideally suited for loyalty or continuity programs.
But probably the most-significant reason why prepaid rebate cards are gaining in popularity so quickly is that they reduce or eliminate risk resulting from state escheatment claims for uncashed rebate checks. Forty-four states, the District of Columbia and the Commonwealth of Puerto Rico have declared funds remaining from uncashed rebate checks represent unclaimed property that must be turned over to them. The process is called escheatment, which is the reversion of unclaimed property to the states in the absence of legal heirs or claimants.
This is a potentially devastating liability for either the fulfillment supplier or the rebate sponsor, depending on their agreement. Whichever party retains those funds may be liable to return the previously retained funds to the states. This has been proven to be even more troubling since, in the Iowa case Fitzgerald v. Young America Corp., the states added three prominent rebate sponsors (Walgreen, Sprint and T-Mobile) to the Iowa lawsuit (Civil Action No. 6030), which originally was thought to be exclusively a fulfillment-industry problem.
Even if a rebate sponsor either intentionally or even inadvertently allows its fulfillment supplier to retain uncashed rebate-check funds in exchange for a reduced servicing fee, it still may owe the states the same pool of money. This is a classic double jeopardy-type of situation.
Additionally, rebate sponsors that choose not to voluntarily report funds remaining from uncashed rebate checks are subject to extraordinary fines, penalties, interest, and legal and accounting expenses. The only reasonable course of action would be to embark on a voluntary compliance campaign before being contacted by the states.
One of the only ways to avoid the slippage and escheatment risk inherent with rebate checks is to convert to open-loop prepaid rebate cards. They generally are exempt from state escheatment regulations because of pre-emption if issued by a federally chartered bank.
This issue alone is perhaps the most-compelling argument for why both fulfillment suppliers and rebate sponsors should convert to prepaid rebate cards. It has taken the states decades to make their assault on uncashed rebate checks. Suffice it to say, taking on the prepaid space on this matter will not be any easier. If anything, it will be more difficult because of the obvious inherent complexities of prepaid cards.
Hal Stinchfield is CEO of Promotional Marketing Insights, a rebate consulting and marketing agency. He can be reached at hal@promotioninsights.com.
