If you’ve been looking at the numbers on prepaid cards in the US, you may have had to do a double take on the fact that we’re expecting 5% of retail spend (around $200 billion) to go through prepaid this year. Who is using all of these cards? Is it the poor and unbanked? Yeah, maybe a little, but this is a solid mix of prepaid debit, payroll cards and open/closed loop gift and incentive cards. Go to any grocery store today, and there are large displays with nothing but prepaid cards of well known merchants (restaurants, theme parks, sporting good stores, etc.). What is going on here? How did prepaid spending go up by 33% from 2009 to 2012 (with a growth trajectory that keeps going up)?
As Groupon demonstrated, people are willing to pay for things in advance, if they can get a little extra for that commitment. While you could make the case that group buying sites like Living Social and Groupon reduced loyalty and perceived value in the long run, it’s definitely the case that all of those people loading up their Starbucks cards are paying upfront because they see more not less value from their pre-purchase.
Merchant issued gift cards like the Starbucks card are really interesting because they provide incentives to both merchants and consumers to use them. The Aité Group did a recent survey of merchants, and it turns out that 60% percent of those surveyed said “increasingly customer loyalty through prepaid cards was a priority over the next 24 months”.
By committing money in advance, consumers can get free items, discounts or bonus cash loaded onto their cards.
On the other side of the coin, the merchant gets access to detailed purchase data (what, when and where someone bought), a committed and loyal customer, the potential to save on credit card fees as well as booked revenue and the potential to keep revenue that consumers forget to use (typically about 20%).
As these prepaid cards move to the mobile phone, there are going to be more points along the consumer decision journey to offer customers the option to be loyal… some may call it bribery, but I’ll take it. And for the merchant, it’s going to offer more granular data points to understand their customers’ habits and preferences.
The next step of course is to offer prepaid on a global scale. What if you could pull out your USD prepaid card from your favorite vendor, and just use the card without having to worry about getting local currency or paying foreign exchange fees. Imagine what you could do with the consumer behavior data sets from something like this. Today, Starbucks already offers customers the ability to pay for coffees abroad via their prepaid card (charged at the current exchange rate with no additional fees). They’re taking on some potential risks and fees, but it’s worth it because of the benefits they gain from all the things we’ve discussed.
As we see virtual currencies like bitcoin and others (maybe Facebook with the addition of David Marcus can delve back into virtual currencies…) become more prevalent as a payment type, we are going to see an easier way to provide consumers a global prepaid solution. And the truth is that it’s really not that far off.