There have been some positive
developments in the prepaid card industry recently around the world
– but, without widespread government support, sentiment on the
product’s profitability remains low, according to many of the
speakers and delegates at this year’s VRL Prepaid Cards Summit in

CI/BRRB Research VRL’s
4th annual Prepaid Cards Summit, held in London on 22-23 October,
brought together the prepaid industry’s thought leaders to discuss
and analyse the development of prepaid so far.
The consensus is that prepaid is rapidly
expanding and growing at an unprecedented rate across several
diverse and emerging industry sectors – but there are differences
of opinion about just how profitable prepaid really is, and how
industry stakeholders can capitalise on growth in the most
efficient and profitable way.

A slew of pessimistic industry reports
published earlier this year, most notably from the US Federal
Reserve, cast doubt on the enthusiastic growth estimates for
prepaid. Delegates at the Summit, organised by RBI’s
sister publication, Cards International, heard that while
some sectors have a way to go before becoming successful, such
pessimism may well be misplaced. Tim Sloane, director of the
prepaid advisory service at payment consultancy Mercator Advisory
Group, said that of the 33 prepaid segments in the US, he
considered gift cards (a market volume of $66.2 billion),
government ($61.9 billion), business incentive ($18.5 billion) and
payroll and benefits ($18 billion) to be the most profitable.

Characterised by low

According to Sloane, gift card
profitability is driven by savings, consumer and merchant
relationships, while payroll and health care prepaid programmes
profitability margins are available with proper implementation and
a large volume of cardholders in place. However, some segments,
such as travel, open-loop gift cards and purchasing cards remain
characterised by low margins, requiring higher volumes and greater
operational efficiency.

Marilyn Bochicchio, CEO of Paybefore,
focused on the all-important theme of consumer education, urging
delegates not to over-estimate consumer awareness of prepaid.

“There is a low level of consumer interest
in financial products – and ‘prepaid’ is meaningless to a lot of
consumers,” she said. “Why would a consumer relate a gift card to a
government benefits card or a card to get into a football game? The
intuitive link isn’t there.”

Familiarity with existing credit and debit
card offerings can also act as a barrier to consumer prepaid
adoption. The main reason many European consumers had not adopted
prepaid was they did not see a compelling reason to change their
current behaviour of using debit cards, credit cards and

“Consumers simply understand that they
have a piece of branded plastic that allows them to make purchases
or withdraw cash,” Bochicchio added. “Unless you are marketing to a
trendy crowd, the tendency is going to be maintaining the status
quo – unless you are able to identify a compelling benefit.”

She added: “There is no such thing as a
prepaid product – it is a family of products that may have little
to do with each other. Making an impact takes time,” stressing the
importance of giving consumers a positive experience using

Modernising public sector

During a special session on prepaid
applications in the government sector, Thore Vestergaard, EMEA
prepaid market manager for Citi, outlined how prepaid solutions
could help modernise public sector disbursements, such as social
benefits, pension payments, unemployment benefits, disability
benefits, tax credits and child benefits.

Vestergaard said that Citi saves its
public sector clients between 50 to 80 percent in payment
fulfilment costs by converting paper payments to prepaid cards. As
an example, Vestergaard pointed to the US state of Maryland and its
distribution of unemployment benefits. The state makes social
benefit payments to over 800,000 citizens, with over $450 million
paid annually in unemployment benefits – 100 percent of which were
paid via cheque. But with the state looking to reduce the cost and
operational burden of issuing cheques and move to electronic
payments, the process was migrated onto Citi Visa-branded prepaid
cards, with great success.

Focusing just on the nascent UK market,
Cards International, in partnership with the British
Market Research Bureau (BMRB), commissioned the first major piece
of prepaid card market research in the UK, interviewing 3,000
people between 24 July and 10 August 2008 using an internet Omnibus
survey tool.

The first headline figure from it raises
more questions that it answers. Consumers were asked: “Have you
ever purchased a prepaid payment/debit card with the Visa,
MasterCard or Maestro logo for your own or family use, but not as a

Of those surveyed, 12 percent of UK
consumers stated they had purchased a card and of these 7 percent
had purchased one in the last six months. Based on an adult
population of around 45 million, this would mean that close to 5.5
million prepaid cards have been sold in the UK, and some 3
million-plus in the last six months – far higher than previous

What can be inferred from this is that
despite a very specific question, a large number of consumers still
do not truly understand what a prepaid payment card is.

Subscribers to Retail Banker International can receive a full copy
of the Cards International/BMRB research by sending an email