As Visa launches V.me, a “digital wallet,” in a bid to be relevant in the proliferation of cloud payment credentials, incumbent payment providers are concerned that in a cloud-based economy Visa and MasterCard may lose their position in the market.

Presently Visa owns the lion’s share of credit and debit/prepaid plastic in circulation globally. (Visa 2,400MM vs. MasterCard 1,000MM)

Upstarts such as Square, and digital innovators such as PayPal, are trying to challenge the status quo and change the way people pay with plastic. Google and Apple continue to disintermediate the card vendors by aggregating large volumes of transactions and pass them back to the banks as “prepaid” with low interchange fees. All in all, new payment players are looking at the old business hegemony of Visa and MasterCard and going OTT (over-the-top).
It is not about eliminating plastic. And it is not really an issue of whether these plastic holders are going the way of vinyl; but more importantly an issue of the business model behind these card and card credentials. Roles are being commoditized.

Cards are simply a way to store and relay banking credentials to the POS in the store and the POS in the cloud. In the US, this is no more than a number that is stored on a magnetic swipe and embossed in the plastic. In the rest of the world, this number is housed more securely in a chip. A chip that can be emulated securely in the phone chip or SIM.

It is unlikely that the costly backend systems in the US and Europe that deal with fraud and regulatory issues will be displaced. And that the 2,400MM Visa cards and the 1,000MM
MasterCards that use these systems will disappear. (*)

However, as Visa and MasterCard continue to be the trusted brands on every online and physical store, they may find their margins dipping. As banks try to revamp their mobile banking applications and ATMs to be more relevant to their peripatetic customer, fewer value added fees and services will impact their margins.

The question to ask is who owns the customers relationship because it is ultimately this relationship (the final foot) that they can monetize. The emergence of mobile and card-linked offers is making the point-of-sale systems in the cloud and eventually in the store, the new promotional depots for digital deals and coupons. So called “big data” and value added services will ultimately yield the most profit. •

*(In emerging markets, where there little infrastructure, companies like M-Pesa service the unbanked via their mobile phone account. Visa has entered these emerging markets through acquisition of Fundamo and MasterCard through a partnership with Telefónica. Similar to the US, these companies are vying for the last-mile relationship.)

Gary Schwartz is CEO of Impact Mobile. He is Chair Emeritus of MEF NA and IAB Mobile, and Author of The Impulse Economy and FAST SHOPPER, SLOW STORE. He can be reached at:
gary@impactmobile.com

Last month, American Express launched a “tweet-to-buy” app that elevates social media’s role in payments – the most recent in a stream of digital payments innovations. While consumers have readily adopted mobile banking and bill payment applications, one could argue largely due to their inherent convenience, they have expressed hesitation toward accepting mobile and social payment applications (think: Facebook), citing security concerns and a lack of usefulness. Despite clear doubts and the potential for security headaches, digital wallet apps and new payment platforms are rolling out regularly. Which begs the question, how and when will these platforms become commonplace?

Cards remain the dominant payment method. In fact, prepaid cards were the only mainstream financial product to report growth in 2011, and the industry predicts prepaid cards will continue this growth spurt. Where does that leave prepaid program managers? Somewhere between relying on what’s been proven and experimenting with new technologies.

Program managers are eager to integrate these innovations into their portfolios, but these platforms face their own development challenges and adoption barriers. People have cited security concerns when using mobile payments, and that will remain an issue for social media payments. Twitter accounts are frequent targets for hackers, and even Twitter itself was recently the victim of a larger data breech. It’s clear that cards aren’t on their way out, and in order to maintain a healthy, balanced portfolio, program managers should seek innovation within the category. New card production models provide solutions to streamline and improve card programs, and eliminate upfront inventory investment.

Just as the ATM became a supplement to the branch bank rather than a replacement, digital payment technologies, like the new American Express app, are likely to become a complement to card programs. Card manufacturers are responding by developing new and improved card production processes. Innovative ordering tools have been created using digital technology, opening a new frontier in customization that helps program managers meet consumer demands for personalization.

The cost of card inventory is already rising, due in part to the uncertain economic and regulatory climate, but also due to an uncertainty about which new technology will gain consumer trust and market adoption. As various digital technologies enter the market, the cost of the vault will continue to increase exponentially. As a result, forecasting and investing in a large card inventory becomes very risky. New on-demand card production solutions eliminate that risk by moving away from traditional, inventory-centric solutions. Cards are produced only when needed, eliminating waste and reducing costs.

Moreover, that zero-inventory model caters to our culture’s new “instant mentality.” In our minds, waiting often equals missed opportunities. New card production models take the waiting out of the equation, eliminating lengthy manufacturing and fulfillment processes and delivering cards in as little as 48 hours in some cases.

Digital has a place in payments. But for now, that place is in production technology and streamlining card fulfillment. And with the latest advancements in on-demand technology, the industry will be nimble enough to make adjustments as we move forward.•

Render Dahiya is the President and CEO of Arroweye Solutions, Inc.  He can be reached at Render.Dahiya@ArroweyeSolutions.com, or visit Arroweye Solutions online at www.ArroweyeSolutions.com.

Prepaid cards are skyrocketing in popularity and driving a future beyond cash, checks, wires or credit cards. A 2012 study commissioned by MasterCard projects the global prepaid opportunity to reach USD $822 billion by 2017 (does not include NFC figures).

That prepaid and mobility will continue to dominate payments has been the subject matter of many articles and some excellent research work by the Network Branded Prepaid Card Association (NBPCA), Aite, Mercator, and others. A key example is the mobile payments wallet (Google, Isis, etc.) which is set to transform the banking industry in multiple ways. Not many realize that 30 percent of store sales at Starbucks are through a Prepaid/Mobile wallet and that is a lot of java.

The growth of prepaid is driven by its practicality. Prepaid cards are safer than cash, more convenient than checks, and in many cases are easier to obtain than a credit or debit card. As governments around the world increasingly drive financial inclusion, prepaid democratizes electronic payments for those outside the traditional banking system and provides a transparent, cost-effective alternative to cash and checks for both governments and businesses. Prepaid also serves the needs of consumers, who find it an ideal payment tool for segmented spending such as dining, travel, and online shopping.

As banks and non-banks continue to roll out new features and functionalities, prepaid providers will play an increasingly significant role. A healthy margin is vital for the prepaid industry to launch and survive in the short run and succeed in the long run.

To attain and sustain financial health in this booming market, I encourage prepaid providers to focus on the following:
Launch of Prepaid: Prepaid like any other retail banking business needs a critical mass of transactions. Businesses grapple with how many customers constitute critical mass; there is no one answer but having anything less than 200,000 to 500,000 cards does not provide enough economies of scale. One possible way to get there is to use the same platform for multiple applications, such as gifting, stored value, education, and health and wellness.

Customer Service: Once launched, prepaid customer service needs to exceed traditional customer service. For banks, especially branded banks, this is particularly difficult because they have customers across all types of credit, debit, and prepaid cards. Startups have a better shot at getting this right using fewer people and more Natural Language technologies that can sync up with chat, Avatar, Email and other surround systems that can render “best of breed service at the lowest cost point.”

Whether rolling out an internal program or engaging an outside partner, prepaid operations managers should address these critical questions:

• How are you measuring Customer Satisfaction (CSAT)? Many card issuers benchmark with their industry peers when they should be measuring their performance against global consumer leaders like Apple or Google. The growth of Net Promoter Score (NPS) as a better measure of customer satisfaction is gaining in popularity among banks and non- banks.

• Are you developing and adopting flexible business models that will adapt as you grow your prepaid business? Build a single platform model that is able to serve multiple channels.

Analytics: As we identify and retain the prepaid customer, prepaid providers should utilize Analytics (doesn’t have to be Big-Data) to grow margins. A trusted partner, such as a business process outsourcing (BPO) provider can help you yield the higher margins that are necessary for success. •

Sankar Krishnan is Global Client Engagement Head of Banking & Financial Services at Sutherland Global Services. Contact Sankar at Sankar.krishman@sutherlandglobal.com or visit Sutherland Global Services online at www.sutherlandglobal.com

Sounds incredible to me, but here we are in the year 2013. Prepaid is moving steadily forward, with new applications being created to smooth out the payment process in a wide variety of business arenas. We are enjoying the popularity of international top up, gift cards, and open loop debit cards adopted by consumers in developed Western nations; in emerging countries, prepaid is driving economies in places like Bangladesh, India, and Nigeria.

Besides the value of prepaid to underbanked consumers, demand from younger, more hip consumers is playing a role in the growth of the prepaid card market. TIME Magazine reported that prepaid cards are garnering further popularity as a result of parents using them to teach their children how to properly manage finances.

Prepaid has definitely gone mainstream. We watch as celebrities promote prepaid cards, including teen heartthrob Justin Bieber. Prepaid phones we only found at convenience stores and discount merchants are now being advertised on TV.

So what can we expect next year? In this first issue of 2013, we offer predictions from the telephony experts. Open and closed loop mavens chime in with prophecies. Who doesn’t love a glimpse of the future? But how can they be sure? Some people look into a crystal ball, while others study data, which has gotten so big that it’s gone to the clouds.

IBM reports that every day we create 2.5 quintillion bytes of data — so much that 90% of the data in the world today has been created in the last two years alone. This data comes from everywhere: sensors used to gather climate information, posts to social media sites, digital pictures and videos, purchase transaction records, and cell phone GPS signals to name a few.

As for mobile, it holds center stage. Big retail growth is online and in mobile commerce. Is prepaid adequately positioned to capitalize on the power and magic of mobile?

It has never been a better time for issuers, telecom carriers, card providers, and retailers to come together and brainstorm. Expect to learn all about trends in mobile enterprise at tppEXPO’13 in Las Vegas on August 12-14. As part of our annual Expo, we are presenting the first Financial Mobility Summit at Planet Hollywood.
Let’s toast the future, and thank our lucky stars.

Arlene Hauben
Editor, The Prepaid Press

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.

Mobile technology is reaching a landmark, as a recent Pew Research Center study cites that 66 percent of people between the ages of 18 and 29 in the United States own a smartphone. And as the smartphone revolution continues barreling ahead at full steam, it is changing the way consumers use their phone.

Gone are the days that we use our phones only for talking, or even texting. Mobile technology is creeping into more and more aspects of our daily lives. We are now using our phones to find directions, browse the internet and purchase goods. Another rapidly developing trend in mobile is political contributions.

Whether it’s announcing a presidential pick, engaging with user bases, or accepting political contributions, mobile is clearly a major factor in this year’s election. Political committees, like any organization or business looking to gain and interact with supporters, are taking advantage of what consumers carry with them almost all the time – their mobile phones. Both Obama and Romney have revamped their digital campaign strategies to take advantage of mobile’s fullest potential.

payvia is extending its reach into the political arena by allowing citizens to make small-dollar contributions via text message to the candidate of their choice, empowering millions of Americans to make their voices heard. By allowing Americans to engage further in the electoral process, payvia is demonstrating the power mobile technology has to connect and engage people within the political sphere. This is getting the ball rolling to enable positive, transformative change within the political campaign finance system.

Now, with Election Day on November 6, efforts to reach younger and more tech-savvy voters over the past few weeks have proved successful, with both candidates already receiving hundreds of thousands of contributions via text message. When you read this blog, either Obama or Romney has won the election to be president of the United States. However, one thing has already become clear – mobile is defining the political landscape for good. •

Darcy Wedd is President of payvia, a mobile and online payments company. Darcy can be reached at: darcy@usepayvia.com.

Between the ages of 13 and 19, teens begin to make more of their own decisions. Everything from the daily choices like which pair of shorts to wear to the major decisions like which college to attend are all made during this crucial life stage. Unfortunately, community financial institutions (FIs) aren’t always on the winning side of teen independence.

Credit unions and community banks know losing touch with this demographic is no longer an option. They understand that carrying a relationship from the teen years through young adulthood is crucial to the sustainability of their businesses. How to maintain those relationships, however, is less understood.

Enter prepaid products. Tailor-made for the challenge, prepaid cards can be the glue holding together an otherwise feeble relationship. Reloadable prepaid, in particular, has the potential not only to solidify existing teen relationships, but also to draw in new Gen Y customers.

A community FI can market the features and benefits of a reloadable card all day long; but it’s tapping into the emotional side of the equation that really sells the concept to a teen or to that teen’s parents. Reloadable cards hold the key to satisfying the most important desire for teens – independence. For parents, they deliver an entirely different, yet equally as valued need – protection.
Because reloadable cards offer overdraft-free access to their funds, teens don’t have to ask Mom or Dad’s permission before they spend, and they can do so without the risk of spending more than they have.

Teen reloadable cardholders also have the freedom to make online purchases without asking for a parent’s plastic. In the age of iTunes and Facebook credits, this is a very big bonus for teens.

Even with its direct-deposit feature, a reloadable card isn’t likely to keep a teen from asking a parent for money. It will, however, make it easy for the parent to fulfill the request, even at a distance. Today, parents can feel secure in knowing money can be sent safely and quickly by loading emergency funds onto a reloadable card.

For a credit union or community bank intent on keeping teen customers for life, the reloadable card offers the opportunity to keep an eye on the potential profitability of these coming-of-age customers. The cards essentially allow teen customers to build internal credit with their community FI, giving them a very solid reason not to follow any kneejerk reactions to switch FIs.

FIs must ask themselves: Of the 13 to 19 year olds in our customer base, how many are life-long fans? Depending on the answer, it may be time to develop a plan for not only finding out, but for planting that FI firmly on the winning side of teen independence. •

Konrad Christensen is Retail Payments Product Manager for The Members Group (TMG). He can be reached at konradc@themembersgroup.com.

Thank you for attending tppEXPO’12, both the exhibits and conference. The reason we organize this event each year is to bring people together and create a dynamic venue for deal-making, information-sharing, and inspiration for future business opportunities.

Each year, I personally learn a great deal from speakers, sponsors, and vendors, which I try to impart to readers. Tim Sloane, director, Mercator Advisory Group, predicted that in 5 to 7 years, prepaid financial services will have disrupted existing financial services. Mobile check deposit is coming soon. Mobile financial services will deliver greater convenience and liquidity at lower cost. We will go from the ATM, Pay @ POS, and the reload network to Mobile Bill Pay, Mobile Remittance, Mobile Check Deposit, Loyalty and Promotions.
One of the most important points raised was this: Who will help small retailers and c-store operators leverage the transition to mobile? Look to your processors, aggregators, check cashers, large merchants, and technology providers for support.
With shoppers acquiring and using smartphones at an astonishing rate, you can’t ignore mobile opportunities. We hope you were alerted to what’s coming and were able to take away ideas and resources that will enable you to execute a mobile strategy.
On the status of prepaid phone calls, it was reassuring to hear about the progress that APPPA has already made in a short time. APPPA vice chair Pete Pattullo, Diana Daniels (representing APPPA chair Gustavo de la Garza) and executive director Gene Retske are working with regulators, consumer groups and other industry participants to assure that consumers have access to the high value international calling services they need to stay in touch with friends and family overseas.
Besides networking, learning, reconnecting with associates, and finding new opportunities, tppEXPO’12 gives us a chance to reboot and re-energize our goals. Yes, we all want to succeed and make money doing prepaid business, but know this: we are also contributing to the betterment of society, by raising the standard of living for the consumer who benefits from the services we provide.
We wish you well in the coming year. Let us know how we can help you.

Best wishes,
Arlene Hauben
Editor, The Prepaid Press

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.

There are currents of change swirling today that could determine the future of the prepaid phone call industry for a long time to come. If you are involved in the production, distribution or sale of prepaid calling services, you should be aware of these trends, and know how to deal with them. You may also have to act to protect your interests. Let’s look at some of the trends that are driving the industry today.

Trend #1 – Changing Consumer Behavior
The core constituency for prepaid calling services has changed drastically over the last decade. Where domestic long distance was once the primary source of revenue, today it is a minimal revenue stream for most providers. There are several reasons for this, among them, (1) the impact of bundling domestic long distance plans with both wireline and wireless services, (2) the low unit price of domestic long distance and (3) government regulation, like USF contributions that make the sale of domestic minutes unattractive.
Today, the primary opportunity is for international services, where the unit prices and margins are enough to justify a business case.

Trend #2 – Government Regulation and Action
Two government agencies, the FCC and FTC, have taken an aggressive approach to prepaid long distance service providers, based on their perception that consumers are often not well served by the providers. We expect this trend to continue, perhaps accelerate.
Perhaps even more concerning is a competition of sorts between government agencies – FTC vs FCC – and the states enacting legislation that compete with federal legislation.

Trend #3 – Technological Innovation
Once upon a time, prepaid long distance services were neat, little activated cards hanging on J-hooks in retail stores. Technology is making draconian changes in the provisioning of services. There are still hard cards, but new concepts, like online sales and portals, are offering low cost, efficient means for distribution.
These new technologies offer new opportunities, and new challenges. The successful prepaid phone call provider must stay on top of the trends and analyze how they can be used or competed against.
As with any business that is heavily dependent on technology, the prepaid phone call industry sees waves of change constantly crashing on its shores. On Tuesday, August 7 at 2:00 PM, at The Prepaid Press Expo ’12, APPPA will present its views on these and other trends in the industry along with our strategies for dealing with them. APPPA chairman Gustavo de la Garza will set the stage for vice chairman Pete Pattullo and executive director, Gene Retske, to lead a discussion of issues. Plan to be there! •

Gene Retske is the Executive Director of APPPA, and former Editor of The Prepaid Press. Visit APPPA online at www.apppa.us.

Ok, Ok… Let me first apologize for the overused “definition headline.” However, when it comes to what we do at The Prepaid Press and The Prepaid Press Expo, there is no better word than convergence, so now we are all on the same page.

Over the last 15 years, the prepaid model has been in a dynamic state. There are few industries that can tout the same level of growth and innovation we have seen in prepaid services. Starting out as a simple Personal Identification Number (PIN) on a paper or plastic phone card in the early 90s, prepaid has blossomed into a true payment method for millions of people around the globe. From long distance and top up, to prepaid debit, gift, loyalty/rewards, and today – mobile payments – the sector is showing no signs of slowing. As a matter of fact, in many industry segments, prepaid is outpacing postpaid options. Once an option for mainly immigrants and credit challenged, prepaid has become a mainstream method of payment that has changed the way products and services are bought and sold.

To us, at The Prepaid Press, convergence is what it is all about. Prepaid services may come from providers in telecommunications, banking, internet technology, and beyond, yet at the retail level, and on any consumer’s handheld device, they are marketed and sold in similar fashions. As a service provider, distributor, ISO, retailer, or industry consultant, you need to understand the big picture; knowledge of one fragment of the industry will not give you the tools to expand and grow your business.

Since 2001 we have kept you apprised of industry news, trends, and innovations in The Prepaid Press, and are now entering our fifth year for The Prepaid Press Expo. No other publication or event provides the in-depth coverage and opportunity for this industry – your industry. Expo has seen year over year growth, in exhibitors and attendees, illustrating the true potential of the prepaid model. If you haven’t attended this event, we encourage you to come out this August. The Exhibit Hall floor, showcasing more than 60 exhibitors from all sectors of prepaid, provides access to the latest and greatest prepaid has to offer. Not just prepaid telecom. Not just payments. Not just loyalty and reward programs. All of it. Convergence at its finest.

This year’s Expo opens with Frank Squilla, SVP of Sales for InComm, as our Keynote Speaker. A true veteran of prepaid, from its “phone card” inception to head of sales for one of the country’s largest prepaid mall aggregators, Frank knows better than most how to tailor your prepaid offerings to maximize your business potential. From there, you will learn from experts across the prepaid spectrum – telecom providers, including: NetworkIP, Auris, Lunex, and DIGITALK; payment providers such as CHARGE Anywhere, First Data, DimpleDough, Prepaid Resources, Fiserv and more; and loyalty and rewards providers: Clearline Mobile, Giftango, and Openbucks, to name a few.

This year, we are proud to offer, for the very first time, a special “Focus on Payments,” brought to you by Mercator Advisory Group. This group of sessions, covering General Purpose Reloadable, Closed Loop Gift, and Mobile Payments, will provide the detailed information you need to thrive in the payments space. These sessions will be led by the research analysts themselves, and will offer a broad education on prepaid and alternative payments to Expo attendees. As we witness the changing landscape of prepaid, we think these sessions are a “must-attend” for anyone in this industry. Now is the time to learn what lies ahead, and how you can adapt your model to take a leading role.

All of us at TPP and tppEXPO thank you for your support over the years, and hope to see you August 6-8 at the Paris Hotel, Las Vegas. The only event Where Prepaid Converges! We can assure you, you won’t be disappointed. •

The numerous capabilities provided by a mobile wallet result in a convergence point among a great number of industries.

The “mobile wallet” is today’s land grab. Payments industry players, mobile telecommunications companies and a range of others from advertising, data collection/analysis, security, social networking, retailing, and more, have jumped in with “wallets” of various types. The major players in all of these fields have been designing their own mobile wallets, believing that the expertise they possess in their particular field will be what sets their wallet apart from the others.

MasterCard recently announced that they would be releasing a mobile wallet later this year, joining Visa, American Express, Google, PayPal, Starbucks, and the telecoms behind Isis – among others— in a group of leaders from various industries that have provided a mobile wallet.

However, these broad mobile wallets have not yet achieved great success.  While Google and Isis wrestle with the ecosystem-wide complexities of NFC, small companies like LevelUp and Tabbedout have been expanding their merchant base across the US with their niche-oriented approach. The reason that the wallets produced by the startups have outpaced those from the major corporations is largely due to their differences in scope.

While MasterCard, Visa, Google, PayPal, and Isis are aiming for universal use and acceptance, the smaller companies are satisfied to begin within a niche market and develop from there.  While Americans in general are not yet prepared to abandon their cowhide wallets entirely, many can be convinced to pay for an occasional meal or bar tab via their mobile phone when the app adds other convenience features, such as coupons, discounts, or simply the ability to leave the bar whenever you’re ready.

When mobile payments have reached critical mass four or five years from now, the mobile wallet market will, most likely, be dominated by the industry giants.  The main unknowable question is which ones.  With so many wallets vying for consumer and merchant attention, any head start should prove beneficial.  With that in mind, the major players may do well in the short term to emulate the limited niche application approach of the smaller competitors, establishing a strong base of loyal users from which to expand in the future.

Mercator Advisory Group analysts Tim Sloane, director of the Prepaid Advisory Service, and Ben Jackson, sr. analyst of the Prepaid Advisory Service, will provide additional perspectives on the payments space during “Focus on Payments” at The Prepaid Press Expo Conference taking place on August 6 & 7 at Paris, Las Vegas. Sloane and Jackson will present three in-depth sessions including: Prepaid and the Alternative Financial Services Market; Be an Agent of Change: Disruption in the Financial Services Market; and Finding Your Way in the Changing Closed-Loop World. •

Dave Kaminsky is an Analyst with Mercator Advisory Group’s Emerging Technologies Service. His research has focused on developments in the ways innovative technologies, particularly Social, Local and Mobile platforms, shape the payments ecosystem. Visit Mercator Advistory Group online at www.mercatoradvisorygroup.com.