Progress Along the Prepaid Path

The prepaid card segment may not be a glamourous one for convenience stores, but it is an expanding one. The category is also a quick and easy way to bring in some new customers and turn a profit. Accordingly, here are some quick and easy tips and tidbits for retailers that want to progress further on the prepaid path.

Prepaid cards have entered the mainstream. In 2014, retail purchases made with prepaid cards, which include debit, payroll cards, open gift cards (from a major card company, which can be used anywhere), closed-loop gift cards (like Starbucks), and open and closed-loop consumer incentive cards, will top $200 billion. This will equal 5 percent of all retail spending in the United States, according to Madeline Aufseeser, a senior analyst at Aite Group, a financial technology consultancy.

The Aite Group recently interviewed 35 industry executives from ?large, well-known national brands? and ?recognizable regional retailers? and concluded that merchants are pushing prepaid card sales to generate revenue. When asked what types of prepaid cards their companies sell now or plan to sell, the results were: third-party closed-loop gift cards (89 percent), prepaid debit cards (85 percent), own company?s branded closed-loop gift cards (77 percent), and third-party open-loop gift cards (80 percent).

There is a growing crowd of ?unbanked? customers. About 40 percent of adults aged 18 and older are unbanked, according to research from Packaged Facts. The firm?s Unbanked and Underbanked Consumers in the U.S. 2014 report noted that this represents an overall 13.2-percent increase from 2005.

Digging deeper, young Millennials, aged 18?24, are now among the most likely to seek alternatives to traditional banking. Young Millennials identifying themselves as ?unbanked? grew almost 25 percent between 2005 and 2014 to reach 67 percent. Packaged Facts attributes this increase to ?recession-driven unemployment and wage trends that have disproportionately affected younger entrants to the job market, with diminished job prospects and wage issues dampening the need for bank accounts.?

However, the researcher also suggests that a larger generational shift away from traditional banking relationships among Millennials may be underway, as these young consumers adapt to newer forms of alternative banking, led by non-bank funding accounts such as reloadable prepaid cards.

Visa dominates the top c-store distributor?s top prepaid SKUs. The top-shipped prepaid SKU from convenience store distribution giant McLane Co. Inc. last year had a substantial value ? the $100 Visa gift card. Visa also was a popular spot holder in the wholesaler?s top 10 prepaid lineup. The No. 2 prepaid McLane SKU was the PayPower Prepaid Visa brochure, followed by the American Express $100 gift card, the Visa $50 gift card and the Boost $50 phone card. The next five most-shipped SKUs were the Visa $25 gift card, the Visa $100 GPR card (plus $3.95 purchase fee), the Verizon $15 phone card, the American Express $50 gift card and the Amazon $25 gift card.

In the retail merchant gift card arena, gas station cards are up. Last year?s holiday season found 12 percent of those shoppers purchasing gift cards to be purchasing them from gas stations, up from 11 percent the year prior. This was the highest amount seen in five years for the channel, according to the National Retail Federation.

According to its most recent gift card spending survey, top choices for those giving gift cards were department stores (around 40 percent) and restaurants (around 34 percent). Total spending on the gift card segment was tallied at $29.8 billion.

C-stores are making merry with international phone cards at holiday time. Stores with high percentages of migrant workers or first-generation foreigners do well with international long-distance prepaid cards in their regular set. But other c-stores are wising up that this might be a super seasonal business, highlighted as a gift item.

?We find we sell a lot of international phone cards during the holidays,? relayed Phyllis Simpler, operations manager at the 13-store Minute Market chain based in Medford, Ore. ?Our Hispanic customers know which cards they want ? the ones with the least amount of hook-up fees ? and they tell us.? The word on the street is profit margins on international long-distance cards run from 15 percent up to 30 percent.

In-house prepaid cards are a no-brainer. More retailers, including c-store operators, are learning to sell their own branded prepaid cards because they can learn about customer preferences and drive more sales this way.

Sixty percent of the merchants surveyed by the Aite Group said that increasing customer loyalty through prepaid cards was a priority over the next 24 months.

Minute Market?s Simpler also told Convenience Store News that ?our own in-house gift cards are turning into a very good idea. We have one customer that buys them for his disabled brother. We are really getting to know our customers through these cards.?

Prepaid centers are popping up on convenience store websites. Prepaid products are not only gaining more prominence in-store, they?re also gaining digital attention. Convenience channel giant 7-Eleven Inc. is case in point.

Under the ?Financial? tab on the brand?s website ? in addition to payment services and cash services ? it now has a prepaid center link that explains to customers: ?With a reloadable prepaid card in your pocket, you can shop online, pay bills and more. And adding money to your card is easy with Green Dot MoneyPak, NetSpend Reload or Vanilla Prepaid Reload. Let?s do a cheer about it. No credit check! YAY!? Clearly, the language and enticement is targeted primarily at young adults.

In addition to the cards mentioned, other prepaid options available at 7-Eleven stores are: Green Dot Visa, One Vanilla Visa Prepaid Card, PayPal Prepaid MasterCard, RushCard Live Reloadable Prepaid Visa Card and Western Union MasterCard.

The 7-Eleven website also has a ?Cards? tab, which highlights apps and digital, gaming, no contract wireless and gift cards. The website tabs are for information purposes only. Customers can browse and learn about the chain?s prepaid options before they head to the stores, but there is no online purchasing of products ? at least not yet.