As it relates to prepaid platforms and the American consumer, the user profile has gone mass market.
By Pat Pape, Contributing Editor
Sharon Neal is the dream customer for any retailer selling prepaid cards. As manager of an educational foundation, Neal spent $10,000 on AMEX prepaid cards in 2014.
Neal purchased numerous $25 cards and distributed them as door prizes to encourage attendance at educational meetings. The foundation also gave away $100-plus prepaid cards to public school teachers so they could buy emergency classroom supplies when needed.
“It was an easy way to get money into the hands of teachers without giving cash,” said Neal. “Prepaid cards are better than giving checks or cash.
RINGING UP SALES
That’s music to the registers of certain convenience stores that pay attention to their customers’ preference for prepaid cards.
The most popular sold in c-stores is a branded gift (stored value) card, according to Troy Land, a frequent blogger about payment options and group executive of emerging commerce at FIS Global, a banking technology provider.
“Both large and small retailers offer their own gift cards tied to their unique brands, which enable repeat and incremental spend at the participating locations,” Land said.
The next step in a growing convenience store card program, he advised, should be a co-branded debit card. One example is the Nytro Card, a combined loyalty and debit card from Maverik Convenience Stores of North Salt Lake, Utah. The Nytro Card can be preloaded with funds and gives consumers a six-cent per gallon discount on fuel, along with extra loyalty program points.
“The benefit of a co-branded relationship is that you are creating and driving a new revenue stream, while limiting your risk,” Land said.
Keeping card offerings fresh and in front of customers is important for Rutter’s Farm Stores in York, Pa. The chain works hard to stay on top of the latest trends and bring in new cards that customers want. Rutter’s recently entered the reloadable business because “this is where many of the increases in the category are coming from,” said Robert Perkins, Rutter’s vice president of marketing.
“We target the peak times for prepaid cards and tie gift card purchases to our loyalty program, offering a two-cent-per-gallon discount for every $5 in gift cards purchased during the holidays,” he said. “We target Mother’s Day, Father’s Day and graduation season to promote our gift card offering.”
Like gasoline, prepaid cards are a low-margin, but they’re also a low-investment product. “Banks and credit unions sell them too,” Land said. “It’s a commodity that people want and use. And billions of dollars are spent on them every year.”
Prepaid cards used to be the domain of the “unbanked” or “underbanked” consumer, individuals who, for whatever reason, don’t have a bank account or credit and debit cards. But that profile is changing. Now prepaid cards are a mass market product used by all types of consumers, those with or without a checkbook or a credit history.
The prepaid and debit card industry saw strong growth between 2010 and 2015. Mercator Advisory Group, an independent research organization in Maynard, Mass., reported that in 2012, an estimated 12 million Americans used a prepaid card at least once monthly and reloaded those cards with a total of $65 billion. That reload figure is expected to jump to $337.8 billion by 2017, an upsurge of 420%.
Similar to a retail gift card, a prepaid card is loaded with money and then used by the owner like a typical credit card. The difference is that the cardholder has already paid for the advantage of making purchases with the card and won’t receive a bill since the card was paid for already, along with additional monthly fees. When the amount of cash on the card is gone, spending halts unless the card is reloaded with additional funds.
Teri Llach is chief marketing officer for Blackhawk Networks, a San Francisco-based company that promotes prepaid cards and does extensive research into consumers’ card use habits.
“We did focus groups with people who had reloadable debit cards or general purpose reloadable cards, even though they have bank accounts,” Llach said. “And in some cases, these people had more than one card. They use the products to help them budget. They have one card for going out, one for coffee, one for getting gas. They told us, ‘When the card is empty, we wait and reload it the next month.’”
Research by TD Bank based in Cherry Hill, N.J., revealed that 21% of prepaid debit card users have an annual income of $100,000 or more; 46% said that the cards help manage their money and track expenditures.
Millennial shoppers born between 1981 and 1997 are value-seekers and conservative spenders. They also are enthusiastic about prepaid cards, with about one-third of American Millennials having used one.
“Millennial demographics are shifting into more types of payment alternatives, with prepaid being one of them,” Land said.
FEES TO CONSIDER
Prepaid cards are especially popular among parents who want to control their student’s spending, according to Llach.
“One of my own kids was making purchases with her debit card,” Llach said. “When she didn’t have enough money in her account, she’d get a $35 insufficient fund charge. She asked, ‘If I don’t have the funds, why are they letting me buy something.’ I explained, ‘You’re using it like a credit card, so it’s fundamentally authorizing [the purchase] like a credit card. If you don’t have the money in your account, you’ll get charged.’”
Replacing the debit card with a prepaid card proved to be more practical and cost effective, she added. Several months of prepaid card fees, often around $5.99 monthly, are considerably less than a single “insufficient funds” charge from a bank.
“People look for the card with the best features,” Llach said. “They understand they have to pay fees, but they don’t want exorbitant fees.”
Shoppers also like using prepaid cards for online shopping. According to a recent study from Javelin Strategy and Research, 56% of “underbanked” consumers report that online shopping is their most common reason for using a prepaid card. The second and third most common uses are retail purchases and grocery shopping. Other reasons are paying for cable and Internet, phone bills, healthcare and pay-at-the-pump gasoline.
Any convenience store can set up its own prepaid department with a little bit of wall space and some j-hooks. “When you create a category, give customers choices,” said Llach. “People like having choices.”
She also advised posting educational signage with the cards.
“Let people know that this is a reloadable card, not a gift card,” Llach said. “People do use them as gift cards, but these cards have monthly fees where gift cards don’t. People who buy prepaid telecom cards have a high tendency to buy prepaid reloadables, so market them together to create a prepaid center.”
There many prepaid brands on the market, including Green Dot, which Consumer Reports rates as one of the best cards with low fees. For a while, celebrity endorsed prepaid cards were touted by everyone from Suze Orman and Kim Kardashian to Justin Bieber and Magic Johnson, but most were short-lived. Visa, MasterCard and AMEX, the network-branded prepaid cards, are well known and can be used anywhere that credit cards are accepted.
While trends in prepaid cards continue to change with the American public, c-store retailers with the wall space for a prepaid department shouldn’t miss an opportunity to ring up a share of those sales, if the opportunity is there.