It looks like the blowback from New Jersey’s new law regarding gift cards is getting bigger and bigger. In what initially was a cash grab from the State of New Jersey, this legislation is going to actually take money out of their coffers.

The crux of the new law is that when any gift card is sold, the merchant must collect data from the customer so that if the card becomes inactive for more than two years, the State of New Jersey can then come in and seize the funds for itself. The specific information to be captured is still not defined but will at least include the purchaser’s zip code and/or name. This is wrong on many levels. Firstly, the Card Act demanded that a card not expire for five years, yet New Jersey says that the cash is theirs after two years of cardholder inactivity. That flies in the face of the whole purpose behind the Card Act to protect the consumer.

Secondly, this puts a huge onus on the merchants and retailers to collect this data at the point of sale, another nightmare for these folks who are just trying to complete transactions and earn revenue in a failing economy. They must consider new software to capture the info. But that’s not all these battered merchants and retailers must face.

The third new wrinkle is that the card companies are standing up to New Jersey and removing their gift card products from the whole state. Companies like InComm and Blackhawk are doing a complete pull out. They simply can’t guarantee compliance for their retailers as they must be able to hold this collected data and report it to the state. This will in turn drive sales tax revenue down and bring this whole merry-go-round full circle. This is certainly creating a black eye for the state of New Jersey and now the damage will be twofold as the tax revenues drop. In the end, it will definitely leave fewer choices for the consumer as well. It will be a “no-win” all the way around. This also harkens to the recent firestorm around the new AML laws in Germany that demand information to be gathered on both the purchaser and the beneficiary of certain e-money transactions. It has been purported that this too will lead to less revenue for retailers and all the trickle down effects of that (less tax revenue, etc). This was very much on the minds of the prepaid industry in Europe last year.

How will this all end? The state of New Jersey is already falling all over itself reacting to the criticism. They are pointing to the fact that they are protecting the consumers by holding the money for them. Consumers only need to file a claim to get that money back with interest. “With interest” says to me that New Jersey is using the money, not just putting it aside for you. They say “better we take your money than the card companies.” Kill the Goose – get the eggs – Will other states follow New Jersey? •

Julie Lambert is Administrative Manager at LifeWork Search.  Visit LifeWork Search online at www.LifeWorkSearch.com.  

If you are interested in contributing to TPP as a Guest Blogger, please contact Editor Arlene Hauben at
editor@prepaid-press.com, or 866.203.2334 ext. 506.

We keep hearing about how the plastic card is going to be replaced by the mobile wallet. My tenure in the payments arena spans 32 years, and let me think – how long have I heard about the demise of the check, money, and of course, plastic? The answer is: a very long time.

Remember the movie “The Graduate?” Ben’s future father-in-law told him how to be rich by mentioning a single word – PLASTIC!

Indeed, we’ve had plastic in our wallets since the late 1940s. That’s 70 years ago. And it’s still around. But for how much longer?

Form factor has long been a debate where smart chip technologies are concerned. Do we really need to laminate that chip between two pieces of plastic? Or can that chip be engineered to work in a variety of form factors, not just plastic cards?

Of course, insofar as the chip is concerned, the form factor is whatever is cheapest and whatever works in the infrastructure. So the answer is an affirmed YES. SIM chips are a perfect example. We can carry an NFC-equipped phone with even the secure element resident on the SIM itself. No card. No plastic. Just a phone — with the ‘right’ kind of technology in it.

But that word infrastructure keeps coming up. What I said a few paragraphs ago was that the form factor didn’t matter just so long as it could work in the existing infrastructure. Oh, you want the terminal to change? If we’re moving away from plastic, do we still need that terminal on the merchant’s countertop?

Here again, we get an emphatic YES as our answer. Some kind of terminal, anyway. Whether it’s a PC or a POS terminal or a dongle we attach to our phones, like Square, it has to work in an infrastructure. So, given we must have an infrastructure that is compatible with whatever the form factor is, does that have an effect on how much longer we’ll see plastic cards?

Here, the answer is a resounding MAYBE. In a recent survey conducted by a French firm tracking EMV deployments and mobile technologies around the world, 3000 consumers were asked who they thought they’d like to receive their mobile wallet from and guess what they said – BANKS. They want their banks to issue them their wallet.

So now let’s ask this question – how much longer will banks want to issue plastic cards, given that consumers expect their mobile wallets to come from their bank?

Regardless of mobile wallets and form factor questions, our infrastructure is geared around the plastic card. Do we need a card? No. Do consumers like cards? Yes, they like what they know. Will cards be around for another 25 years?

ABSOLUTELY!!

You can’t displace infrastructure overnight. There is still $2.5 billion worth of POS infrastructure slowly being turned into readers that can transact with a computer chip instead of a magnetic stripe, but that’s still a lot of infrastructure to go. When I first started working with smart cards, that infrastructure number was closer to $3.5 billion.

And if you listen to some of the analysts who look beyond POS infrastructure to all of the infrastructure that supports mag stripe, that $2.5 grows to over $15 billion. I think plastic will be around until at least 2050, although we’re already seeing new form factors coming on stream and being used by consumers. And mobile wallets for the mass market are still five to 10 years away.

I’ll leave you with this thought – for those who make prognostications, it seems easier to predict what will happen in the next two or three years. And 85 percent of the time that we make projections for that time frame, we’re wrong. Our tendency is to overestimate the short-run projections and underestimate the results when looking a decade out.•

Peter J. Quadagno is CEO of Quadagno & Associates, Inc. Visit Quadagno & Associates online at www.Quadagno.com.

If you are interested in contributing to TPP as a Guest Blogger, please contact Editor Arlene Hauben at editor@prepaid-press.com, or 866.203.2334 ext. 506.

The Earth moved in January. As the former editor of The Prepaid Press, I frequently lamented the lack of a trade association for the prepaid phone industry, especially the sector that focuses on prepaid international calls.

Now, it has finally come to fruition.

From the good efforts of Gustavo de la Garza, president of Marcatel (owner of Vivaro), and Pete Pattullo, CEO of NetworkIP, a dozen companies met in Washington, D.C. the week of January 23, 2012, and agreed to form the American PrePaid Phonecall Association, or APPPA. I was asked to serve as Executive Director, and accepted the challenge.

In the past week, I have been very busy with the adminis-trivia involved in incorporation, and all the necessary details that go with setting up a new trade association – corporate papers, finance, telephone numbers (we have one- 202.370.7600), website, etc.

As one of our first actions, we met, in an informal session, with several representatives of the Competition and Enforcement Bureaus of the FCC. They were interested in the Association, but want to see how it unfolds.

Prepaid international phonecalls are a lifeline for the millions of immigrants and foreign workers in this country, in addition to citizens who have friends and relatives overseas. The primary mission of APPPA is to assure the availability of this vital service. Without it, millions of people would be stranded without a viable economic means lifeline to friends and relatives overseas.

Please contact me if you want further information about joining APPPA.

APPPA Logo

What can we do?

Read the complete details in the October issue of TPP, now online.

All of this is occurring in light of the Millennium Telecom case. If you are not familiar with the case, you should be.

The FTC alleged in the case that Millennium had hidden fees which were not clearly disclosed in its ads and was not delivering the number of minutes promised. As a result, the FTC got a court order to freeze Millennium’s assets and appoint a receiver to manage Millennium’s business. I won’t go into the details right now, but the message from the FTC was crystal clear, Millennium is only the first to be targeted. Stay tuned to TPP as developments occur.

For those of us who came from a telecom background, Durbin is starting to strike a familiar tone, and not a good one. In similar scenarios, agencies of the federal government allowed political pressure to bring a process to its knees.

In the case of Tollgate, which sought to compensate payphone operators for dial-around calls (search “dial around” from the TPP home page for more information). In the 1996 Telecommunications Act, Congress delegated the decision on how to set the fees to the FCC to resolve. From there, the saga was an ongoing series of reconsiderations, court actions, appeals and administrative manipulations. It is still not fully resolved, 15 years later.

I fear that Durbin is on the same trajectory. October is a long way away, and, while one group has dropped their suit, this could be far from over. As I said in the last blog on this, the worst thing that could happen is a delay, and while Congress was not able to outright appeal Durbin, the lobbyists have not surrendered, so the likelihood of further changes and delays is high.

The lesson for political scientists is that Congress should set policy and hand it off to Federal agencies to implement, and not delegate policy. The lesson to the prepaid industry is, be flexible, just when things seem to be set, the ground may still be moving.

But, it appears that we may be entering a period of extended uncertainty, so short term strategies will rule. A shame, but the reality.

Now, ISIS has announced it will be scaling back significantly. WSJ had extensive coverage today.

(If you don’t subscribe to WSJ, here is a Reuters article about the WSJ story.

What happened?

For one thing, AT&T bought T-Mobile. This had the impact of making ISIS an AT&T – Verizon collaboration, taking some of the wind out of the sails. But, the real impetus for the scaling down was that only Discover was involved. The reality is that Visa and MasterCard account for almost 80% of the transaction market, Discover a distant 3rd at less than 4%. Originally, ISIS had the ambitious goal of creating a transaction network, but with the AT&T T-Mobile acquisition, most of AT&T’s attention, and money, will have to be focused on integrating T-Mobile, so ISIS has to be scaled back.

A shame, a competitive new transaction network would have been a better answer than the Durbin amendment.