Opportunity abounds when it comes to prepaid cards. And at the CSP Prepaid, Financial Services & Other Income Forum in Las Vegas, c-store retailers discussed how they were just scraping the surface of this complex treasure hunt.
First, the opportunity, presented by Brent Watters, senior analyst for Maynard, Mass.-based Mercator Advisory Group. One piece of that bounty is open-loop cards (used for general purposes), which he says will more than triple in sales— from $94 billion in 2009 to $292 billion in 2012. Holiday shoppers who waited until the last minute particularly boosted open-loop sales last year. “They’re paying that extra $2 or $4 for the card, but they’re understanding the value proposition of the flexibility of what that card offers them,” Watters said.
Closed loop—used at single or group retailers or restaurants—is another golden nugget, expected to grow modestly, from $196.4 billion in 2009 to $233.8 billion in 2012. While individual brands can carry cachet, Watters said recession-wary consumers have become much more cautious about retailers and eateries going out of business: “They didn’t walk away from it, but they did think twice about what they are giving or what they are purchasing.”
As for how consumers employ prepaid in general, Watters said the economy has had an effect. Some are using it as layaway, socking away money by purchasing gift cards to build up to the purchase they want. “I think if you’re a retailer, you should really take into consideration what’s going on right there, so there’s a huge opportunity,” he said.
Others are using prepaid cards to separate funds, so that each family member knows how much they have to spend. “They’re using the cards as a replacement for the old envelope system,” he said.
And many rely on the cards for budgeting. According to Watters, 34% of respondents in a Mercator survey used general purpose reloadable (GPR) gift/prepaid cards for this purpose and discarded them when empty; 31% bought gift/prepaid cards for stores they typically shop (such as a specific supermarket chain) and discarded them when empty; 29% use GPR cards and reloaded when starting a new month or pay period; and 16% buy gift/prepaid cards for frequented stores and reload them.
RAKING IN RELOADS
Reloads, said Watters, is where retailers have most to gain. According to the survey, 62% of general-purpose reloads are estimated to originate from retail store locations. This can translate to upsell opportunities and increased foot traffic. (Specific numbers were not available for c-stores yet, but Watters encouraged industry professionals to participate so Mercator can include those numbers going forward.)
Karen Sobie, vice president of retail sales for Tampa, Fla.-based card solutions provider nFinanSe, said some of her company’s potential customers even request to do only reloads. “We’re not going to do that to our retailers that are carrying the shelf space,” she said. “We’re trying to drive traffic back to that retailer who is selling and reloading cards.”
“The convenience channel, and I think even the drug channel, are seen as a more convenient place to reload their GPR cards than the grocery channel or the mass channel,” added Ron Betti, vice president of sales for Atlantabased InComm, also a solutions provider. “So some people are buying their cards at a Walmart, and then going to a Walgreens or a Thorntons and reloading their card.”
EMBRACING OPPORTUNITY
To become a destination for cards, as well as reloads, retailers should examine their merchandising, marketing and program support, and the actual product they have on hand.
Merchandising. Movable displays can be a disservice to the prepaid category, making them difficult for customers to find. “We’ve seen increases in sales when you create a home for these products,” said Tom Solomon, vice president of InComm. And among shoppers who have experience shopping for cards, 75% are browsers, Watters said: “You can own that customer when they’re in there browsing your store. Once they find what they want, they’re coming back to you.”
Sobie recommended using pointof- purchase displays to educate customers about features and benefits. “It can become an impulse purchase,” she said. It’s also important to keep displays properly stocked: “It looks terrible when you see a gift-card mall that isn’t stocked right that has big gaps in it.”
Another merchandising must is to separate gift cards and financial-ser- vices products. Proposed legislation may soon require such division to protect consumers from confusing the two. But it can also be a time saver.
Leslie Demourelle, gift-card category manager for Deerfield, Ill.-based Walgreens, said her company already separates the two in most stores. “And we saw a dramatic decrease in our customer service calls,” she said. “There was so much confusion between the two products.” It’s difficult to separate the displays in smaller-format stores, but, “It’s a different customer and a different shopping occasion, so it’s better to separate them.”
Marketing. Solomon suggested implementing an annual promotional calendar and strengthening consumer awareness with incremental displays, including info in circulars; establishing cross-promotions; and promoting during holidays and special events. So, while prepaid cards generally represent a low percentage of daily sales, Solomon said, they are “huge in convenience” for the holidays. “That’s a strategy all of you could implement and see your sales increase.”
Program Support. Executive sponsorship must be visible and communicated, and metrics and performance should be shared on a regular basis. Solomon suggested having in-store contests for healthy competition among associates.
Product. In working with providers, nFinanSe’s Sobie recommended requesting simple training materials, as well as training for store associates. Retailers should also request samples for store associates: “If they know it, they can use it. If they use it, they can sell it.”
Giving consumers a healthy selection is also important. “We discourage you from ever doing an exclusive; we don’t want an exclusive deal with you,” said Sobie. “You offer Coke and you offer Pepsi. Offer choice, offer selection. It’s not one product fits all.”
Attendees of the CSP Prepaid, Financial Services and Other Income Forum
held Feb. 24–25 in Las Vegas:
RETAILERS
Andy Ernst CHS Inc.
Mike Esposito Cumberland Farms Inc.
Thomas Faust Dodge’s Stores
Lori Bull Fabulous Freddy’s Car Wash
Jeff Wrobel Kwik Trip Inc.
Jim Fiene Open Pantry
David Martinson RaceTrac Petroleum
Duane Shields Short Line Express Market
Ray Johnson Speedee Mart
Mike Santiago Thorntons Inc.
Dennis Gardner TravelCenters of America
Leslie Demourelle Walgreens
Rich Romano Winn-Dixie
SUPPLIERS AND SPEAKERS
Andy Carr AIR-serv Group LLC
Allen Preslar, Ray Taddeo CoinStar
Ron Betti, Tom Solomon InComm
Karen Sobie nFinanSe
Fred Haumesser, Dennis Henderson Ready Wireless LLC
Brent Watters Mercator Advisory Group
Tips to Grow On
- Prepare for open-loop prepaid cards to take the lead in sales.
- C-store retailers have an opportunity in selling reloads.
- Proper merchandising is key in prepaid card sales.
Top 10 Federal Issues
The CSP forum was held in cooperation with Prepaid Expo USA 2010. In one expo session, Judie Rinearson, partner with the New York offices of Bryan Cave LLP, spoke about the top 10 legal and legislative issues facing the prepaid industry. In no particular order, they are:
Fees. “We’re now seeing a movement toward what I would call paternalistic laws that really basically say the consumers don’t really know what’s good for them, so we’re going to impose on the industry what needs to be charged, when they can be charged, and how often they can be charged,” Rinearson said.
Disclosures. “What we ask ourselves is, are the regulators and the laws going to prescribe specific methods of disclosure?”
Federal regulations. Current legislation under consideration would require cards to have the name and address of every card holder. This would eliminate the ability to give an anonymous gift card.
State laws.Will states increase consumer protection laws, and in what areas? For example, a law under consideration in California requires merchants to provide cash back to the purchaser or holder of any gift card with a balance less than $20. And, as Rinearson pointed out, “California is a very influential state.”
Preemption.Will national and federal banks lose their preemption rights with respect to state consumer protection laws? “The importance of preemption for the whole industry is that it helps get uniform laws across all states,” she said.
Money laundering. “The law-enforcement community is very, very worried about prepaid cards. They feel that they are among the highest risk.”
Cross-border restrictions. Law enforcement wants to require treating these prepaid products like cash or monetary instruments. So when you’re coming in or going out of the country with more than $10,000 worth of these product, you’d have to declare it.
Abandoned property.Will state regulators increase efforts to enforce abandoned property laws on network-branded and prepaid cards? Rinearson said she has seen increased audits by states. “If you started issuing cards two or three years ago, you may not have hit the fiveyear limit. But a lot of card issuers are, and the states are hungry.”
Money-transmitter licensing.Will we ever have a reasonable and uniform moneytransmitter- licensing law for non-bank? “If you’re not licensed in a state where you’re supposed to be licensed, that’s a violation of federal criminal law.”
Payroll cards.When will there be clear and uniform state laws about payroll cards? Rinearson said this is a growing area of prepaid, and that state department of labor laws differ. New York, for example, has taken the federal requirement for “free and clear” access to paid wages to include unlimited free ATM transactions.
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