It wouldn’t even be recognizable to retailers 10 years in the past, when money orders and calling cards dominated. Now, prepaid and financial services means QR codes, near field communications, portals, prepaid smartphones, online gambling, maybe even your cable bill.
“It’s the Wild West,” said one attendee walking the show floor at The Prepaid Press Expo, held Aug. 6-8 in Las Vegas. (See sidebar on p. 194 for more insights from the show.)
The category isn’t quite full of outlaws and gunfights, but it is a moving target as products continually change, new services enter into the fold and legislation elbows its way into supplier and retailers’ dealings.
For a c-store, keeping up with changes to the category can be a full-time job. Add mobile technology to the equation, and you’re going to need another IT guy, too.
But for the retailer dedicated to being a category leader, there are rewards to be had.
“The more financial services you offer, the more profitable it becomes to you,” says Ben Jackson, senior analyst, prepaid advisory service, for Mercator Advisory Group, Maynard, Mass.
Success comes with training both the staff and the customer, ensuring you have the technological capabilities to provide the latest offerings, and keeping an eye on the horizon as the definition of “financial services” shifts its shape.
Market Intelligence
Before you get excited about online gambling, the first step is staying abreast of what’s happening in the legacy prepaid categories.
- Open-Loop Cards. Also called general purpose reloadable (GPR), this market is expected to grow by 48% from 2011 to 2014, according to Mercator. The forecast for dollars loaded onto open-loop cards by the end of this year is $226.9 billion. That number should hit $281.7 billion next year, and $353.8 billion in 2014.
Prepaid industry marketer and distributor InComm, Atlanta, expects this growth to come from continued demand from the unbanked and underserved markets, as well as new market segments such as financial institutions, transit agencies, large retailers and federal programs for tax disbursements.
What’s more, regulations such as the Durbin Interchange Amendment and the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 have fostered a positive environment for the use of prepaid cards. In the case of the CARD Act, the limiting of credit-card issuances to the under-21 population have made prepaid cards more appealing to that demographic.
- Closed-Loop Cards. The gift-card market is expected to grow 15% from 2011 to 2014, from $278.9 billion to $329.8 billion, according to Mercator. Not growing as much as the open-loop market, closed-loop cards still have a place in the store. What’s more, the average total value spent on these cards also saw a healthy increase in 2011, from $161 to $211.
- Prepaid Long Distance. Sales for prepaid long distance is falling due to low costs per minute for international destinations, the growth of mobile phones and prepaid wireless, as well as online services such as Skype and VOIP. Dollars loaded on closed-loop products in the prepaid long-distance segment declined by 5% in 2010 and 11% in 2011 from its peak of $3.9 billion in 2009, according to Mercator. Projections indicate that the decline will continue at least through 2014, dropping to $2.8 billion.
But $3 billion is nothing to turn your back on. “Even a decline in business can still be a good business if you’re one of the few providers,” says Juan Pablo Gonzalez, senior vice president of sales and distribution for prepaid long distance provider Vivaro, New York.
Today, prepaid long-distance cards are largely used for international calls by immigrant populations, Gonzalez says. These consumers are primarily calling Mexico and the rest of Latin America, as well as Asia, Europe and Africa. Maintaining sales will come through understanding and catering to that customer.
Also, a number of new services, such as “pinless” calling for international on mobile devices, international-originated calls and reverse call cards, may help slow the decline in prepaid long distance.
- Wireless. Demand for smartphones and data plans are fostering growth in this category, which has the attention of traditional carriers as the postpaid market reaches saturation. Leap (Cricket) and Sprint’s Virgin Mobile brand both have partnered with Apple to offer the iPhone for prepaid use.
No-contract wireless is expected to grow from 24% last year to 31% in 2016, according the Ovum Trends and Activities Report. No-contract subscribers make up nearly 23% of total mobile subscribers, up nearly 2 percentage points year over year.
Be a Teacher
Education in the prepaid and financial-services space involves three groups: yourself, your staff and your customer.
Jackson of Mercator recommends three steps: a well-thought-out display, signage around the store and proper prompting by the staff to raise awareness that the products are in your store.
He offers the example of a recent trip to Walgreens, where he was seeking a Babies R Us gift card. The store didn’t carry it, “but I give the guy at the store a lot of credit because he prompted me: ‘You can get this Visa gift card instead.’ ”
Prepaid cards can be confusing, particularly international long-distance cards. Jackson recommends giving store employees cards to try out themselves; you can either ask your provider for assistance, or create a budget for it.
Employee education is also an issue of security. A growing crisis in the GPR space involves people calling stores and asking for PINs off cards. They pretend to be a manager, a customer whose card didn’t work, or even the card provider doing a “test.”
The problem is “growing by leaps and bounds,” says Frank Squilla, senior vice president of sales for InComm.
Retailers should work with their POS provider to establish a trigger in the computer system that asks the clerk whether the customer is in the store. “If the answer is ‘no’ then the transaction is stopped so the PIN can’t be given out. If they say ‘yes,’ then you know it’s employee fraud,” says Ron Betti, vice president of indirect and regional convenience sales for InComm.
Perhaps the simplest measure is to establish a rule against giving PINs out over the phone—under any circumstance. “If you’re a 20-year-old clerk and you get a call and the guy says, ‘I’m your COO and I’m stranded, I need you to give me a PIN so I can get money on my card to get my car fixed,’ you’re afraid not to,” says Betti. Store protocol should guide the clerk to tell the caller to hold while he or she checks with a manager. “Nine times out of 10, you put the guy on hold and he’s going to hang up.”
POS Evolution
New services and the mobile wallet will continue to shift what’s required of the register, so communicate with your point-of-sale provider to make sure your system has some longevity.
When it’s time for an upgrade, discuss with your provider the services you’d like to be able to accept—near field communication payments, chip-and-PIN cards—and work together to determine the best system.
Also look at your system’s capabilities and what new technologies might fit. Jackson points to Starbucks’ mobile application: “They said, ‘OK, we know we have scanners in all of our stores, so we’re going to create a bar code that can be scanned by those scanners. Here’s what we have, here’s what we can do with that.’ ”
Along with advances to prepare for the influx of the mobile wallet, Betti recommends talking to your POS provider about capabilities to do a swipe reload and a variable amount denomination to be loaded onto cards. InComm works with a number of POS companies to make this available, though some older systems still don’t allow for it.
And don’t forget your customer demographic—are they tech-savvy, or will it take years for them to catch up to the mobile revolution? “[Retailers] need to pay attention to what their customers are doing, and what they think their customers are going to do,” says Jackson. “So first know your customer, and I think that’s a question that retailers always face.”
Looking Under Rocks
The Wild West prepaid landscape is ever-changing, and new segments are surfacing that could become new profit centers for prepared retailers. Mercator and InComm are watching transit cards and toll systems and the potential for c-stores to be centers for reloading as well as picking up cards and transmitters. Transit now accounts for 3.8% of total closed-loop prepaid loads in 2011, according to Mercator.
Other segments to watch include utility payments, land lines and even prepaid cable.
A bright spot on the horizon could very well be online gambling. Multiple states are now working through legislation that would allow retailers to sell cards in their stores that consumers could then take home, go online and use to gamble.
While some merchants are concerned about negative pushback from the community, others find it very promising. “Especially for the c-store industry, it’s something that will really, really do well,” says Betti.
Calling cards, utilities, transit, online gambling—with a pipeline of new categories and advances in digital and mobile payments, opportunities are ripening for the retailer who wants to become a destination for financial services. They key, says Jackson, is the word “destination”: “Retailers need to make the c-store seem like a one-stop shop for all sorts of services, and the way they can offer those services is through prepaid.”
Straight Off the Show Floor
Prepaid suppliers and merchants met in Las Vegas in August for The Prepaid Press Expo as well as the CSP Prepaid & Financial Services Forum, hosted by InComm. A number of new products and services were rolled out at the show that emphasized not only the expansion of the category, but also suppliers’ desire to differentiate themselves with unique services:
- 7 Dias Y Noches. A new prepaid calling card from Vivaro that allows unlimited calls to Mexico for seven days from one U.S. number to two different Mexican numbers. The card works from any phone and can be used to call cellphones in Mexico as well as landlines.
- Conexion Directa. The only product of its kind available in U.S. stores, Conexion Directa from Vivaro allows a Mexican phone number to call a U.S. number unlimited for 30 days—avoiding the high tariffs callers in Mexico typically face. The $19.99 card is rechargeable and there are no contracts, fees or limits on number of calls.
- My Vanilla GPR. From InComm, this card is meant for consumers who are very familiar with and interested in the perks of general prepaid reloadable cards, and use them as banking alternatives. The card includes services such as ATM access, signature and PIN, online account access and more.
- Monthly4G. T-Mobile’s prepaid program allows customers to get unlimited monthly phone, text and Web service for $50 per month. Any phone can be used, including smartphones.
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