According to figures from Mercator Advisory Group, the prepaid market isn’t big—it’s huge, and growing exponentially every year. Mercator’s debit advisory head Tim Sloane said that closed loop prepaid cards grew at a rate of 88% year over year from 2002 through 2006.
Sloane predicts that when the 2007 figures are analyzed, they’ll show another increase. "Many large merchants who were selling their gift cards in their own stores as well as in the prepaid malls many c-stores use just freaked out" last year, he said. "The volume was growing so fast they had to question if they were selling through convenience stores at the expense of their own sales."
Closed loop card sales through prepaid malls totaled nearly $3.7 billion last year, Sloane said, and c-stores were definitely a major distribution channel.
"Sales of our reloadable gas cards continue to increase," said Carolyn Yapp, U.S. Cards and Payments Manager for Shell Oil Products. "We are very encouraged with this product and think it provides a very nice alternative for folks just entering the credit world and for parents who want to have options to give to their children who drive."
Shell is planning to run a prepaid card promotion at Christmas using a new NASCAR design featuring the Shell/Pennzoil car No. 29. "We sold over a million of those last year," Yapp said.
However, far overshadowing reloadable closed loop cards, Visa and MasterCard open loop prepaid card sales grew at 121% overall.
Shell has been investigating the possibility of entering the prepaid debit card market, which is extremely popular with the growing Hispanic population and with consumers who are "unbanked" for whatever reason. "It is a segment of the market we are very interested in," Yapp said. "We are making progress but cannot talk much about it at the present time."
Markets Emerging
When prepaid vendors speak of the underserved market, they’re really talking about three different groups: People who are "unbanked," meaning they have no transaction account or credit score; those who are "underbanked," meaning that they have transaction accounts but no access to incremental credit; and unregistered immigrants.
For convenience stores, all three groups offer a tremendous channel of potential income from card sales, reloads, fees and purchases.
C-store sales of prepaid debit cards aren’t growing nearly as fast as customers might like for a couple of reasons. One problem is that merchants must be tied to a real time reload network so when they take a payment it loads immediately into the transaction network. That may not sound like a big deal, but up until last year it was the biggest because most networks didn’t have that capability.
The other problem is the c-store itself, especially the mom-and-pop stores that now make up more than half the channel. "Prepaid debit card providers are worried that something could go wrong when they try to get their money from the merchant account, so they’ve been slow to roll it out in a lot of locations and to smaller retailers," said Gene Retske, senior vice president of Prepaid Press. "Plus, the potential for fraud is huge. A merchant could sell a thousand $100 debit cards and disappear by the next day, leaving the card company hanging."
