Prepaid is a fast growing space in the financial services industry, especially because issuers and program designers are making it easier to understand cards by differentiating them for specific uses.
Prepaid cards created for specific purposes and situations are turning out to be an effective guidance and marketing strategy. In general, consumer use of prepaid cards climbed by about 18 percent last year as shoppers spurned checking accounts, debit cards, and other traditional banking products with higher fees, according to a new study by Javelin Strategy & Research. “People used to think of them as cards for people who didn’t have a lot of money, whereas today they’re becoming much more common for a variety of uses and a variety of demographics,” notes Javelin’s Beth Robertson.
Issuers mostly agree that more people will be carrying multiple prepaid cards for specific uses. The soccer Mom, for example, might be carrying a general purpose reloadable debit card to pay for things online and use bill pay. She might also have a transit card in her wallet next to a Target debit card, which gives her 5 percent off all purchases. The payroll card she gets from her job carries incentive points for reaching sales goals.
The issuer has discovered that they need to segment products so the consumer knows what to do with the card. “More categorization is needed to direct and guide people in the use of the prepaid product,” said John Dwyer, account executive at CPI Card Group, a card producer that offers data personalization, security packaging, and card fulfillment services.
Differentiating Cards to Educate the Customer
Not only are prepaid cards being increasingly differentiated into specific use cards, they are becoming more stylized to capture the shopper’s attention. “Prepaid products are gaining more attention in retail stores by being brighter, with more glitter,” said Dwyer. “Consumers make decisions in a second, so packaging is critical.”
Also at CPI, Stacey Jensen, innovation and packaging design, noted, “Consumers need to understand product and how it is meaningful to their lives.” For that reason, packaging has become more technical looking and instructive.
In general, the many types of prepaid cards fall into two main categories -- open loop and closed loop. Open loop cards are network-branded (e.g., American Express, MasterCard or Visa, and Discover) and can be used wherever the prepaid cards bearing the network appearing on the face of the cards are honored.
The Prepaid Advisory Service at Mercator Advisory Group researches 26 different prepaid market segments, including government disbursement cards, gift, payroll, travel and transit, health care, and incentive. Each of these prepaid card verticals services the specific needs of a target market with differing product features.
Closed loop cards are typically sold by merchants, can be used only at merchant locations, such as Target or Home Depot cards, typically are not reloadable, and normally can be redeemed only for goods or services.
Prepaid open loop is a financial tool, not just a card. That’s why there is a big explosion in use among banks that are breaking away from credit. “Banks are offering prepaid cards that can be used the same way as credit. They can be used for disbursement, payments, and as tax refund cards,” said Jensen. “These are huge options when it comes to getting a check or card for specific purposes.”
Marketing language also tells the consumer that the card is for a specific use. It might direct the holder to use the card for online shopping, use the card as a gift, use the card to board the train, and so on.
Following are some examples of card types that are relevant for specific purposes, special occasions, and annual obligations, namely tax time.
Prepaid Debit Card at Tax Time
Electronic filing is the easiest way to ensure that taxes are done quickly, inexpensively and accurately. By using a card to make purchases throughout the year, taxpayers can track their expenses easily and avoid the usual pile of receipts. Using a payment card to pay taxes cuts down on postage and allows taxpayers to handle everything from home.
Debit cardholders can pay taxes for a small fee of $3.49, less than the postage required to send everything through the mail. Taxpayers who opt for electronic payments can also rest easy knowing that they receive instant confirmation of payment.
H&R Block has been a pioneer in creating an electronic tax experience from filing to receiving your refund. When the IRS introduced electronic filing, H&R Block was ready with a solution, encouraging clients to get their refunds by direct deposit. For those without a bank account, the tax preparation company introduced the H&R Block Emerald Prepaid Master Card so taxpayers could get their refunds quickly and securely, or do last-minute tax filing.
Home Improvement Card
The home improvement card is an example of Restricted Authorized Networks (RAN), an important product market for Discover Financial Services. Jeff Lewis, head of prepaid services at Discover, said that RAN was developed for a specific network of the same type of stores, such as home improvement stores.
InComm recently launched the Home Sweet Renovation Sweepstakes in celebration of Father’s Day, which will award three lucky winners with Do It Yourself (DIY) Home Improvement gift card prizes worth thousands of dollars.
With Father’s Day approaching, InComm’s DIY Home Improvement gift card makes an ideal gift and is available in any denomination between $20 and $500. The card can be used at thousands of home improvement retailers in the US where Discover cards are accepted.
“Though dads’ interests may vary, there are very few who wouldn’t love the chance to go on a shopping spree in their favorite home improvement store. The DIY Home Improvement card gives dads the freedom and flexibility to pursue whatever project they want, at whatever retailer they choose,” said Robert Skiba, EVP and general manager of financial services, InComm.
Public Transit and Travel Cards
Public transit systems in the US started to move from cash-based fare collection systems to prepaid card systems in the early 1990s.
“Prepaid is a great application for public transit because it is fast, people like it, and it is convenient,” said Peter Quadagno, who worked on and launched the MetroCard for New York City’s transit system. “Technology is different for a transit card, because the system is card-based, with everything working between the card and the reader. Most importantly, the card system creates an audit trail for keeping track of revenue.”
Planet Payment, a global payment processor specializing in payment solutions, is empowering University Cab Cash, a company headed by Thomas Hickey, a co-founder of PT-1 Communications, which operated a closed loop prepaid card product targeted for the transportation industry.
Specifically, UCC works with universities and other organizations, such as nursing homes, to provide a transportation card to members of their community, which can be used to pay for taxi services in the local area. UCC expects to launch a new version of its program this summer, which will allow students to use their student ID cards as payment with local cab companies. The program has been widely accepted by universities and parents, as it provides security and safety by ensuring that students are always able to get a cab ride home.
“By utilizing Planet Payment’s flexible and comprehensive platform, UCC is able to offer terminal solutions of many types to the taxi industry, from iPhone solutions to integrated solutions,” said Craig S. Libson, SVP Strategic Initiatives.
FIS recently launched the Travel EMV Card to simplify travel for US consumers where EMV chip technology is used for card-based transactions. US-issued credit and debit cards use magnetic stripe technology, which is not widely accepted abroad. The EMV chip-based cards have been adopted globally for their increased level of security.
FIS, a provider of banking and payments technology, says the EMV chip card offers the latest in secure payments technology in a convenient prepaid card. Focusing on the increasing demand for secure, convenient methods of payment for consumers, the FIS Travel EMV Card combines the latest in EMV chip technology and a traditional magnetic stripe, which they say provides financial institutions with an instant-issue, low-cost product to offer to consumers. An alternative to traveling with cash, credit cards or traditional traveler’s checks, the cards are safe, easy to use and accepted worldwide.
Payroll cards are attracting interest from public and privately held companies. A payroll card is a prepaid card that is directly or indirectly established through an employer. Electronic fund transfers of the cardholder’s wages, salary, and other employee compensation, such as commissions, are made on a recurring basis to the card.
Government Disbursement Cards
Prepaid cards are now used for the purpose of disbursing government payments, such as Social Security payments, disability payments, disaster relief payments, WIC or Food Stamp disbursements or government payroll.
The gift card is perhaps the sweetest spot of all in the prepaid card specific use segment. First Data’s 2011 North American Gift Card Consumer Segmentation Study showed the frequency of gift card purchases among consumer segments. Card Enthusiasts bought seven gift cards last year for friends and family. Helpful Husbands were surveyed to buy gift cards for their kids during the winter holiday season and are interested in new gift card technologies such as e-gifting. Convenience Shoppers are likely to buy 4.8 gift cards a year for weddings, graduation, and thank you gifts.
After studying prepaid cards for specific uses, it is safe to say that they help to suggest and define the purpose of the card. That can do a lot to make the card understandable and easy to use. As differentiation becomes even more sophisticated and versatile, prepaid cards will become more widely accepted and more fun. •