Convenience stores can generate more customer interest with the right prepaid card program.
By Howard Riell, Associate Editor
Open-loop prepaid cards present an ongoing opportunity for c-stores, especially since the prepaid market is fostering activities that are putting more of these types of cards in consumers’ hands.
Open-loop is a term most often associated with a credit card carrying logos such as those for American Express, Discover, MasterCard or Visa that can be used wherever those cards are accepted. They are more likely to carry fees. These are different than closed-loop cards, also called single-purpose cards, which have an individual company’s logo, indicating where the cards can be used.
Retailers are typically paid for each open-loop card they sell, or when they reload them. Additional sales hopefully accrue when consumers use them inside the store or at the pump.
The overall growth trajectory of both open- and closed-loop prepaid cards is, however, undeniable. According to Global Industry Analysts Inc., the global market for prepaid cards is projected to reach $3.1 trillion by 2022, driven by the growing need for financial inclusion of unbanked consumers, innovative and expanding card features, increasing online transactions, and rising demand for cost-effective and convenient electronic payment solutions.
“The money operators can get by selling the cards is all dependent on the deals they negotiate with the distributors,” said Ben Jackson, director of Maynard, Mass.-based Mercator Advisory Group’s Prepaid Advisory Service. “Operators want to use the cards if the cards provide a service that brings people into the store and supply a good enough margin, but it is a business decision like with any other product. They should compare that with other products and services that they might offer and the demands of the customer base.”
C-STORE OPTIONS
Convenience retailers have growing opportunity to meet that demand, depending on customer preference.
“There are two versions that c-stores sell,” said Tim Sloane, Mercator’s vice president of payments innovation, referring to prepaid gift cards. “One is an open-loop gift card. Vanilla Visa Gift Card is an example. And then there are GPR (general purpose reloadable) products, which would include Green Dot, netSpend and the like. Those are cards that are reloadable. You buy and register the card, and you can have money on it, typically up to $500. If you don’t register the card then you can go ahead and spend the $500, but you can’t put any more money on it.”
In addition, customers who use the GPR products they’ve acquired tend to return to the store, Sloan continued.
“There is the ability, if you are a large c-store operator, to start thinking about how you might want to have your own solution that enables them to have a prepaid account, be able to do loads on it, but also be able to give incentives, if they continue to use that card back at the convenience store location,” Sloane said.
That said, c-stores can benefit with the right prepaid platform.
“Think about it: one of the reasons the card makes sense to whoever is issuing it is because when the customer uses those cards at any merchant, interchange is given back to the owner of the card, like Green Dot or netSpend,” Sloan said. “So for all the time the cardholder is going out and using the card, there is a small interchange fee being returned to Green Dot and netSpend. If the convenience store owner were the operator of that card, he or she would be receiving interchange from wherever the money on that card gets spent.”
When the card is used in one of the c-store chain’s own stores, of course, the store would keep that interchange.
“They don’t have to pay interchange on that card because it’s simply coming in the back door after it’s going out the front, which means they’ve got more money to be able to provide incentives and loyalty solutions to that cardholder,” Sloane said. “Unfortunately, very few c-stores are doing this.”
USE OR LOSE
Hans Pomeroy, president of Brad Lanier Oil Co. in Albany, Ga., which operates nine Homerun Foods convenience stores throughout Georgia, said there was one major reason he introduced a proprietary open-loop prepaid, reloadable card in July of this year.
“Hopefully, (customers) will lose them; use them and lose them,” he said. “As you know, a certain percentage of all cards get lost. Then it’s all profit—100%.”
Consumers who lose their Homerun Foods cards, which can be used inside the store or for gas, will also lose whatever funds they have loaded onto them, Pomeroy explained.
“That’s the same for Home Depot, Lowe’s, any of them. And a known fact is that Home Depot and Lowe’s percentages both run about 5%; that is, 5% of the money is lost,” Pomeroy said. “That’s the part that intrigued me.”
In the past, he explained, his c-stores would sell gift certificates for gasoline and in-store merchandise. “But it just didn’t look right. A little plastic card is more convenient.”
Pomeroy and his colleagues have made no revenue projections for the card as yet, he explained, because it is still so new.
“I have no experience; none. We just thought of it. In the beginning it’s slow,” Pomeroy said. “The word has to get out. It has to be here a while. And then I expect the heaviest use to be around Christmas.”
He has elected not to actively market the card, aside from mentioning it on the outside marquees.
“First I want to make sure that the system is running well. The problem is that gasoline is a low-margin business, so you can’t spend a lot of money on advertising,” he said.
With his stores scattered among a variety of different types of communities, Homerun Foods also has c-stores that serve student populations at Albany State University and Darton State College.
DIGITAL SOLUTIONS
Mercator’s Jackson said that a growing trend in prepaid gift cards of which c-stores can take advantage, is the digitization movement.
“Now, many people are buying cards online or through mobile apps and sending them via e-mail or other electronic means,” Jackson said. “In c-stores, this sometimes means that people do not want to buy a card, but simply add time to their phones or load money to a general purpose reloadable card. This can often be done through things like swipe reload or PIN-on-receipt. However, that requires the store to have a point-of-sale system capable of offering those services.”
Consumers use prepaid cards for gifting, self-use, replacing bank accounts, adding minutes to phones, purchasing digital content and accessing financial services. In the end, convenience might be the most notable factor.
Jackson predicted prepaid cards sales will continue to grow.
There will be a move to a more mobile platform that will reside on consumers’ phones, predicted Perry Kramer, vice president and practice lead at Boston Retail Partners.
“Any convenience store that is not already offering prepaid cards should get in the game,” said Kramer.
“Retailers should consider cross-marketing prepaid cards near a small rack of greeting cards for gift-giving occasions,” he added. “It is also key to proactively monitor the in-stock process to make sure they are not missing sales from out-of-stock positions.”