Last year, while most considered the economy to be in a recession, prepaid card usage experienced a 61% increase in growth (source: Mercator Advisory Group). And with usage projected to triple from $120 bil in 2009, to over $440 bil by 2017, smart business owners are getting ready to ride the trend and cash in. Here’s a quick look at a few of the markets that are expected to benefit the most, as well as a few tips on how you can profit from this exciting opportunity.
What Are “Open Looped” and “Closed Looped” Cards?
There are several ways to define the prepaid card market. There’s ‘open-looped’ and ‘closed-looped’, gift cards and loyalty cards, payroll cards, one time incentive cards, and more. But what, exactly, are ‘branded’ cards? That’s easy. Both to define and to remember.
Branded cards have either the VISA or Mastercard brand logo on them. These are referred to as ‘open-looped’ because, unlike a store gift or rewards card (which can only be used at one of a specific businesses locations)… a branded card can be used almost anywhere. Anywhere that takes Mastercard and VISA that is.
By contrast, a good example of a “non-branded” card, would be a Target Card. You can use a Target card at any Target store in the country – but you can’t use your Target card at WalMart – because WalMart is out of Targets’ “loop”. That’s what is meant by a “closed loop”. Usage is ‘closed’ from anywhere except it’s own store location.
But unlike a Target or WalMart card, a VISA prepaid card can be used at WalMart, or Target, or any other place that accepts VISA. The same thing goes for MasterCard. And that, my friend, is a lot of places.
Who Uses PrePaid?
So, who uses prepaid cards? And what markets do they represent?
The answer is what makes this market so exciting. Their usage, (and therefore their markets), seem to be an ever expanding universe. Consider a few of the following and you’ll begin to understand the scope of it.
A few of the ways prepaid cards are being used are:
Payroll – many employers use them as a cost-savings alternative to traditional paper checks
Incentives – companies preload a certain dollar value onto a card (which as you remember, can be spent anywhere that accepts VISA & MC) as bonuses for qualifying sales contests, etc.
customer rebates – many vendors offer rebates on cards (vs. mailing a paper check)
gift cards – for convenience in gift giving
loyalty/rewards cards – to encourage and reward customers for repeat business
general purpose reloadable – cards which can be reloaded over and over, which appeal to those who don’t have checking accounts (i.e., the unbanked), or, anyone who doesn’t want to carry cash
In store refunds – instead of giving cash for items returned, many are giving stored value cards, insuring money for refunds will be spent in the same store
bill paying
phone cards
Who Can Benefit
Businesses that sell prepaid cards and/or services are in an ideal position to capitalize on the tripling of growth expected in this industry.
Here are a few of the types of businesses that benefit from current trends:
convenience stores – selling reloadable cards enables store owners to capitalize on the high traffic in and out of their store each day
ethnic and specialty stores – are natural locations for international phone cards and reloadable prepaid cards
retailers
most places with high traffic and either don’t want to take checks or would like to reduce their usage can offer prepaid cards as an alternative
other businesses (see list above), who could benefit form the savings from reduced pqperwork and improved tracking of electronic payment processing
In Summary
While there’s no denying the economy presents business owners with ongoing challenges, there are still sectors where money will trend… and those who trend with them can profit tremendously.