Prepaid Helps Foster Loyalty

The prepaid category is evolving at a fast clip, allowing convenience retailers more options to engage customers, whether it’s through more card sales or more loyalty participation.

By David Bennett, Senior Editor

This Mother’s Day, U.S. spending is expected to hit a near-record high, second only to last year’s $23.6 billion. That’s a lot of roses and bathrobes.

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Not surprisingly, you can count gift cards in that huge holiday spend. Anymore, gift cards have become a smart shopping solution that saves consumers time and rings up sales for retailers. Drilling deeper, prepaid cards are also a viable means for convenience stores to generate more than just holiday sales.

The prepaid category is evolving at a fast clip, allowing convenience retailers more options to engage customers, whether it’s through more card sales or more loyalty participation.

In a new survey from Dallas-based Excentus, a provider of loyalty and coalition marketing solutions, includes the vast extent of influence loyalty programs wield over shopper decisions. While location is still the number one reason shoppers go to a specific c-store (44%), findings from Excentus indicate nearly as many shoppers (43%) go to a c-store because it offers a rewards program.
While prepaid cards may be considered rewards in terms of convenience, the opportunity to integrate prepaid offerings into loyalty programs seems to be growing.

Emily Collins is an analyst with Forrester Research who specializes in customer loyalty programs, with an emphasis on trends, technologies, services and analytics. She explained retailers can use prepaid reward programs to gain a competitive advantage.

“From my perspective, loyalty benefits are the reason companies give consumers to participate in a prepaid card offering,” said Collins. “For consumers, it’s much more cumbersome to purchase and load/reload a prepaid card than just use a credit card. The primary benefit of prepaid cards goes to the retailers who have faster access to those funds,” said Collins.

Eventually, such transactions create a stronger connection between the buyer and the retailer.

“For example, I might load $50 onto the card but have an average order value of $5,” Collins said. “The retailer simply has to remind me to keep coming in to spend down the card rather than convince me to choose them for my $5 purchase each time. Starbucks pioneered this model and many high-frequency/small purchase amount businesses have copied the model with some success.”

The same can be said for the c-store channel, especially as loyalty models become more diverse.

“In the convenience space, the companies I talk to are exploring prepaid as well as the traditional loyalty card model. 7Rewards (from 7-Eleven) provides a good model for mobile-based loyalty in the convenience space that has evolved from a ‘buy 5, get 1 free’ type model to a points-based program where consumers can choose their rewards.”

InComm, a leading prepaid product and payment technology company, in March 2018 released a study entitled “The Closed-Loop Self-Use Consumer.” The study indicates closed-loop gift cards have historically been purchased as gifts for other people. They are retailer- or brand-specific gift cards that can only be used for that particular retailer or brand (in-store or online).

The study also found that the majority (72%) of these self-use gift card consumers think gift cards are as personal and thoughtful as other types of gifts. In fact, the average self-use gift card consumer bought eight physical gift cards and three digital gift cards in the three months prior to the survey.

InComm, which recently announced a deal to acquire distribution rights of American Express’s prepaid reloadable and gift card products in the U.S., also provides self-use gift card statistics in the study, including that 64% of self-use gift card consumers are female. These consumers are married (55%) and own a home (59%) in a suburban area (48%).

Moreover, 45% of respondents who identified as self-use consumers had at least completed some college or graduated from college. Forty-five percent of respondents had a household income of less than $50,000; 36% had a household income between $50,000 and $100,000 and 17% earned more than $100,000.

While Marines are known for their loyalty, a comprehensive loyalty program hasn’t made it to the Marine Corps Exchange (MCX) yet. But, it’s coming soon, said MCX spokesman Bryan Driver.

MCX is currently developing a loyalty platform for its shopping locations, which includes more than 200 convenience and specialty stores. Driver explained it’s too early to ascertain how prepaid offerings will fit in. However, the military retailer still carries both open and closed-looped cards from a wide array of supplier partners.

“Our open-ended Vanilla Visa cards are universally accepted,” said Driver. “We are working with our third-party card supplier to continually identify new and upcoming opportunities in this category.”

As more c-stores are getting into online ordering and mobile transactions, there are similar opportunities tied to digital prepaid or virtual prepaid cards. Virtual prepaid cards have the same functions of physical prepaid cards except you can only use them for online purchases and for phone orders.

Since they are designed for online purchases and phone orders, you can’t use them at retail stations for POS purchases. However, these cards facilitate the customer’s online shopping experience by making it safer and more convenient for them to make purchases.

Industry experts also tout virtual prepaid cards for marketing campaigns. They make it easy for companies to offer value-added promotions to customers with little labor and costs. Because e-commerce is becoming a significant part of the convenience landscape, and is also growing, any type of digital offer for online redemption tends to appeal to customers.

According to InComm, convenience stores that are solely focused on door swings and consumers pulling prepaid cards off pegs are missing a large opportunity. Exploring and embracing the digital side of retail creates new opportunities to drive both loyalty and revenue. For example, stores that allow customers to redeem points in store, on an app or website are continuing to capture their customers’ attention once they’ve left the store.

Additionally, a positive digital experience encourages additional in-store experiences.

A more robust digital side also enables convenience stores to offer products like experiences or travel opportunities that aren’t, or can’t be, in store, InComm reports.