Vanilla's Recipe For Survival in the Cutthroat Prepaid World

With regulatory scrutiny from the Card Act of 2009 and the Consumer Financial Protection Bureau, various prepaid and gift card products have come and gone in recent years. InComm's Vanilla Gift Card is not one of them.

The prepaid market has had some prominent flare-outs, from the short-lived Kardashian Kard to the more ambitious Tempo/Debitman decoupled debit product. That InComm's Vanilla card is celebrating its 10-year anniversary actually says less about its ability to adapt and more about its original business model's ability to endure.

"What you are seeing, over time, is that the providers who have managed to stay in business simply just got it right," said Madeline K. Aufseeser, senior analyst with Boston-based Aite Group. "They have it [right] from a feature-function perspective, to a competitive marketing perspective, to regulatory compliance."

Longevity in a prepaid product equates to hitting all of the consumer hot buttons and complying with regulations, while also having a good handle on how to market products to consumers and the retailers that ultimately benefit from extra business.

Atlanta-based InComm has called the Vanilla Gift Card one of its most popular and innovative products. Various other prepaid and gift card companies have been on the market for a long time as well, including NetSpend, Green Dot and UniRush.

It is also one of the products that draws the most diverse range of celebrity endorsers, including athletes like Magic Johnson, financial gurus like Suze Orman and pop stars like Justin Bieber. Many of these products rushed into the spotlight a bit too fast, and couldn't withstand the scrutiny; others survived by keeping their celebrity endorsers at arm's length rather than making them the main draw of the product.

One of the few lasting prepaid cards with a celebrity attachment is UniRush's RushCard, pushed by music mogul Russell Simmons, who has been an active executive at the company since founding it over a decade ago. RushCard has survived by adapting with the times, steadily lowering its fees whenever possible; the card, which once cost $19.95 to obtain, now costs $3.95 to $9.95 depending on the product.

Most celebrity cards make the fatal mistake of being created to benefit the celebrity, not consumers or retailers, said Jeff Lewis, vice president and general manager of financial services and mobile at InComm.

What consumers have really wanted all along is a payment card, not a fashion accessory, he said.

"Our goal is to put a product in market that people like to give and use, because our perspective has to be long term," Lewis said. "Our goal is not to put a card in the market, make a lot of money and walk away. For too many celebrities, it is about themselves or what they represent, and they will not last long."

Gift or prepaid cards that stand the test of time need a solid marketing strategy as well. For InComm, that meant putting a lot of thought into how its Vanilla Gift Card is packaged on the retailer racks.

The product is consistent but the packaging varies based on the time of year or the occasion for which the prepaid gift card is being purchased, Lewis said. "Whether it is Father's Day or birthday parties, we spend a lot of time on packaging so that it provides a feeling," Lewis said. "It is not just a cardboard holder for the card."

When a card resonates with consumers for 10 years, it does not mean the provider is just going to sit on it laurels, Aufseeser said. "They are going to continue to refine their products and push to get their customer base to use the products more," she said.

InComm went that route with the Vanilla Gift Card, evolving its marketing to suit a growing number of use cases. Its lineup grew to include the OneVanilla Card designed for self-gifting and the reloadable MyVanilla Card. All of the Vanilla cards carry the Visa or MasterCard brand.

The biggest challenge for Vanilla and its peers are still ahead of them. Many mobile wallets either come with built-in prepaid accounts or are designed to link directly to checking accounts, and prepaid card marketers must find a way to maintain their momentum despite this new competitive threat.

Prepaid card companies must also cope with the perception that they are less secure than bank-branded cards, as evidenced by the hit Netflix show "Orange Is the New Black" explaining in its most recent season how to use Green Dot MoneyPaks as part of a scam, despite Green Dot no longer offering that product.

The MoneyPak is a type of reload card, purchased with cash as a way to add funds to an existing prepaid card account. Because of the potential for fraud with this process, companies like Green Dot and InComm have been steadily shifting to a reload system that lets consumers add funds to an account by swiping the prepaid card at the point of sale.

Vanilla will also get a security boost by being used with mobile wallets that add tokenization, a process that replaces the static card account number with a secure and dynamic token, Lewis said.

If InComm wants to stay relevant to its customers, it has to consider making digital or virtual gift cards available to those who will ultimately want to pay for many things with their smartphones, Lewis added.