European consumers are using prepaid cards for a variety of purposes, including budgeting, creating an opportunity for prepaid marketers to expand their presence in certain countries, First Data says results of a recent survey it conducted suggest.
First Data Corp. commissioned Auriemma Consulting Group to conduct an online survey last June and July among 500 consumers each in Germany, Austria, Italy and the United Kingdom to measure awareness and usage of prepaid cards there.
One of the survey’s key findings, according to First Data, is that many European prepaid card users are more affluent than those who commonly use prepaid cards in the U.S.
The survey revealed that 57% of European consumers who expect to buy a prepaid card within the next 12 months described themselves as credit-worthy consumers with annual incomes above US$57,000 (40,000 euros or 35,900 pounds).
In the U.S., prepaid cards are more heavily marketed to lower-income and unbanked consumers, but in Europe prepaid cards primarily appeal to middle- and higher-income consumers, according to Tony Craddock, CEO of Global Prepaid Exchange, a London-based industry trade association. “In Europe, prepaid cards are not seen to be in the domain of the lower class,” he says.
One reason prepaid cards in Europe are not centered on lower-income and unbanked consumers is that that Europe’s unbanked market is smaller. In the United Kingdom, High Street banks are required to offer basic checking accounts to anyone, according to Paul Stanley, vice president of payments strategy at First Data.
Europeans also tend to use prepaid cards to get around certain payment and banking obstacles. For example, low credit card penetration in Germany and the inability of consumers there to use debit cards for online purchases leads to greater prepaid use, Craddock says. “German consumers are visiting newsstands and other locations to purchase prepaid cards and vouchers to use online,” he says.
In each country, respondents expecting to buy a prepaid card in the next 12 months exceeded the number of those purchasing a card in the previous 12 months.
The survey suggests the greatest potential for increased prepaid penetration may be in the UK, where 63% of consumers surveyed said they were likely to buy at least one prepaid card in the future compared with 21% of respondents who purchased one in the 12 months prior to July 2009.
Germany could also hold potential for increased prepaid card penetration, the survey suggests, as 49% of survey respondents said they planned to purchase a prepaid product in the future, compared with 25% who had actually purchased a card in the 12 months prior to June 2009.
Some 44% of Austrian consumers said they are likely to purchase a prepaid card in the future compared with 24% who purchased a card in the 12 months prior to June 2009.
Italy appears to have the most mature prepaid card market as 73% of respondents said they are likely to purchase a prepaid card in the future compared with 66% who purchased a card in the 12 months prior to July 2009.
Craddock cites a couple of reasons for the prepaid card market’s success in Italy. Italian debit card accounts tend to carry fees and other charges, such as for reoccurring direct debits, Craddock says, noting that “most European consumers are very conscious of not going into debt.”
The Italian postal system also plays a role because it issues Postepay, a reloadable Visa-branded prepaid card. Italian banks also are successfully marketing prepaid cards to their mortgage customers as a budgeting tool for the rest of the family, Stanley says.
“A husband can give a card to his wife and another to their child as a way to control spending,” Stanley says. “[Prepaid card] distribution [by the post office], social structure and habits and marketing have made prepaid successful in Italy.”
Stanley believes it is too early to say whether prepaid cards as a budgeting tool in Europe will become an emerging trend, but “certainly the events in the last 12 months in the financial segment mean that consumers are much more aware of their spending habits as we’ve seen [consumers preferences change] from credit to debit.” A struggling economy, among other factors, could increase prepaid use in Europe.
Stanley warns that U.S. prepaid card companies approaching the European market should first carefully study the market’s unique characteristics. “I think (U.S. marketers) come with a view that [the market] would be similar to the U.S. where they are facing an unbanked population,” he says
Instead, U.S. companies should to reposition themselves in a market that is banked and has income, Stanley suggests. “You have to think about marketing to particular age groups and associated demographics... and how do you reach them and how you actually distribute the product.”
