Reloadable Profit

Consumer use for prepaid and reloadable credit and debit cards is on the rise and savvy c-store operators are capitalizing on the trend

A confluence of variables developed in recent years, leading to a spike in the sale of prepaid credit and debit cards. In 2007, consumers loaded $12 billion on prepaid credit/debit cards, and are projected to add nearly $202 billion onto these cards in 2013, according to Mercator Advisory Group, a research and consulting firm that tracks card trends and activity. In fact, the total market for cards that can be reloaded is expected to exceed $420 billion in three years, according to the group.

This is due in part to the significant growth experienced in the gift card market, combined with the growing number of people that do not have traditional bank accounts and require a convenient option.

“We are seeing a lot more prepaid card malls where folks are going to other stores to buy a Borders gift card, for example, and not going to Borders to buy it. These malls are growing in retail locations like convenience stores,” said Ben Jackson, senior analyst at Mercator Advisory Group. “As the gift card malls have grown, it is taking other cards with them, such as prepaid Visa and MasterCard, and on top of that there has always been a specialty surrounding the convenience store space that first sold prepaid phone cards.”

It is due to the success of prepaid calling cards and gift cards that more convenience stores are entering the banking business. This includes Stripes, part of the Corpus Christi, Texas-based Süsser Holdings, operating more than 520 convenience stores primarily in New Mexico, Oklahoma and Texas.

“We operate in markets with high percentages of unbanked customers,” said Chris Switzer, category manager for Stripes. “We believe we have significant opportunities to grow sales by capturing a larger share of this customer segment.”

Over the last few years, Stripes built a loyalty program with its Stripes store card that offers discounts on such items as gasoline. The growth rate of this program led to new prepaid and credit card initiatives. “We rolled this out to all our Valero-network stores, which included stores flying Valero, Shamrock and Stripes canopies,” said Rod Martin, vice president of marketing for Süsser. “We have focused our efforts exclusively at the store level, as not all stores can support the program.”

Before moving toward prepaid and credit cards, the goal behind the Stripes store card was to remove the middleman — credit card companies — that charge high transaction rates. “We look at this less as a way to drive transactions, and more as a way to drive purchases away from credit and debit,” said Martin. “By monitoring trends, we can calculate the and therefore ROI between swipe fees and the 3-cent per gallon discount.”

With customer card-centric comfort level achieved, along with an effort to capitalize on all transactions avenues, Stripes began looking at prepaid credit card alternatives. They are not alone, with countless c-store chains also following suit, including Kwik Trip, which began offering Visa and Discover reloadable prepaid debit cards last year. The Ohio-based Friendship Food Stores promotes its card program in-store and on its Web site, which states: “Are you looking for the perfect gift for family, friends or co-workers? How about a Friendship Food Stores Prepaid Cash & Gift Card? Friendship Food Stores offer gift cards in any denomination.”

Jackson said c-store retailers should expect to see more and more competitors entering or enhancing card efforts and campaigns. To this end, the Mercator Advisory Group estimates $42.09 billion was loaded on general purpose reload-able cards such as NetSpend and Green in 2010. “We predict that will grow by 68 percent in 2011, to $70.7 billion,” he said. “By 2013, we expect total dollars loaded onto these cards to reach $201.9 billion.”

All gift cards, which include open-loop, such as prepaid Visa, MasterCard, Discover and American Express, and retail-specific closed-loop, such as Home Depot, Gap and Nike, will increase in the near term. “We estimate that $86.3 billion was loaded in 2010. We expect that to grow by eight percent in 2011, to $93.4 billion,” Jackson noted. “By 2013, we expect that will reach $109.1 billion.”

When Stripes made the decision to move into the prepaid debit and credit card space, they selected nFinanSe Inc., a Tampa-based financial services company and provider of prepaid card solutions. The final deal resulted in the sale of $3 Visa and Discover releasable prepaid debit cards.

“We believe that our industry's low, customer-friendly pricing combined with the excellent everyday store traffic at Stripes locations will encourage initial trial, usage and early adoption of reloadable prepaid debit cards among Stripes customers,” said Jerry Welch, chairman and Chief Executive Officer of nFinanSe.

Switzer at Stripes explained the program has been successful to date. Promotions vary by store and region, although he said there is one universal approach to connecting with customers. “We utilize promotional material from the supplier to educate consumers on the product. We generally use POP [point-of-purchase] to communicate,” he said. “These materials provide the majority of information customers need.”

There are countless companies offering credit card programs, but nFinanSe was selected due to its low rates, which include a $2.95 monthly maintenance fee for an unlimited number of purchase transactions; free direct deposit of payroll; SMS purchase and balance alerts; and a 24/7 live agent customer support line.

While Switzer could not provide statistics on returnon-investment, he explained rates are revisited every year. “We negotiate our fees based on standards for the category and channel competitors,” he said. “Volume is a key leverage point when negotiating.”

Additionally, Switzer said that Stripes will continue to capitalize on the trend in prepaid reloadable cards. “The category has seen significant growth over the last year,” he explained. “We expect double-digit growth in 2011.”