The Prepaid Press - February 2009 - (Page 18)

PAYMENTS & PROCESSING February 15 · 2009 - 18 Prepaid Debit Card Trends What’s Driving Their Success? By Arlene Hauben “The various reload solutions in today’s retail environment differ in terms of fee structures, processes, support services, implementation, licensing, and other important metrics,” states Watters. “The lack of standardization is the simple result of a market that remains, and may be mired, in its early infancy.” Reloading could offer an opportunity to reduce high churn rates, alleviating the struggle of providers to retain cardholders. When a consumer perceives sufficient value in an open-loop product, he or she will make the effort to reload the product with funds. The Mercator Advisory Group measures a variety of open loop segments, each of which has its own growth dynamics and trends. According to Tim Sloane, Director of the Prepaid and Debit Advisory Services of Mercator, the important story is that while some segments will continue to grow, others will slow down. Sloane sees an increase in federal and state disbursements, including unemployment, food stamps, and Temporary Assistance to Needy Families (TANF), as a result of the current economy. Others, such as employee and partner incentives, are likely to take a hit. “While remittance activity is likely to be negatively impacted by the economy, the market for State Unemployment and Court Ordered Payments are likely to grow significantly,” says Sloane. Based on Mercator Advisory Group projections, Social Security will have the largest increase going forward with growth of 3,000 percent between 2007 and 2008, due to the ramp up of the Treasury’s Direct Express card program. The Direct Express card, which is more efficient and costs less than paper-based disbursement methods, gives millions of unbanked Americans the option of using a debit card for receiving Social Security and other federal benefit payments. The accounts are PIN-protected, FDIC-insured, and subject to federal consumer protection regulations. card, the balance escheats to the crown (the government) and not to the card issuer. Interesting trends in state laws, which have been on the books for ages, are just now being brought up to speed with technological ad- All sectors need to work together, embrace one another, and learn how to offer unique products. vances. Marashlian comments, “States have adopted a few, consistent approaches to escheat laws as they apply to gift cards. In the majority of states, gift cards are subject to escheat after three or five years, depending on the state.” Marashlian states that stored value and network branded prepaid debit cards (e.g. Visa and MasterCard) are not subject to state laws that govern gift cards or state consumer protection laws. These types of cards are governed by federal banking laws and regulations, and are beyond the reach of state regulators. Unlike gift cards, however, in addition to dormancy fees, prepaid debit cards may contain other fees that would not be allowed under the laws of several states. from page 1 what we have,” says Paris Holt, CEO, telSPACE mCASH Holdings. Meanwhile the millennial generation, aged 13 to 28, is pointing the way to mobile banking. Tied to their cell phones, young people want instant connectivity to add and transfer funds from different accounts, their own or their parent’s. Holt calls it “mobile commerce,” and the key is the cell phone. Holt’s company has partnered with Green Dot, PayPal, and other providers to make money transfers simple and compatible. “The movement of money from card to card using a mobile number can be free and in real time,” says Holt, who believes it also minimizes risk, citing $5.2 billion in bad debt in the credit card industry The mCASH mobile banking solution enables a customer’s mobile phone to operate like a virtual bank where customers can activate a new card, view their transaction history, and load money to their account from wherever they are. Facecard takes an upbeat approach in selling to the Facebook community. The prepaid reloadable MasterCard is being promoted as a prepaid card, gift card, and cash card all rolled into one (“like a burrito”). Another socially branded card is the Social- Packaged Facts, a market research company, predicts $200 billion on prepaid debit cards in 2011. wise Prepaid Debit Card, which has been optimized for social networks. It is being marketed as an exciting new wave in group gift giving. Like the Facecard, it incorporates features that will allow parents, grandparents, friends and others to contribute to the card. The card holder has the freedom to purchase the items he or she really wants or needs. The Outlook for Prepaid Debit How can the industry sustain its phenomenal growth? Lori Breitzke, CEO, E&S Consulting, tells us that the prepaid card open loop industry needs to find additional distribution in order to continue double digit growth. “Distribution can be expanded by adding locations, but also by expanding into unique corporate clients,” says Breitzke. “The prepaid and merchant acquiring industries will intersect to offer additional products and services.” Breitske believes that an open industry fo- Reloading could offer an opportunity to reduce high churn rates, alleviating the struggle of providers to retain cardholders. rum is the way to facilitate distribution expansion. All sectors need to work together, embrace one another, and learn how to offer unique products. “The industry needs to find a way to market its products and take a proactive stance with regard to legal and consumer protection issues,” notes Breitske. As for prepaid debit card holders, she encourages them to read the fine print. Online Innovation Social networks, such as Facebook and MySpace, are another trend that is changing the market for prepaid debit cards. “We are seeing compounded growth rates with products targeted to young adults,” says Ed Braswell. “We have interfaced with social networks by offering peer to peer payment capabilities, and offer mobile connectivity for checking account balances or sending gift notifications.” Reloadable is next frontier The next stage of development for prepaid debit is the ability to reload from one account to another at the retail level. “Reload networks are still in their early infancy,” reports Brent Watters, Senior Analyst, Mercator Advisory Group. “Reload networks operate in a fragmented manner with pricing that does not support low dollar loads, slowing the growth of General Purpose Reloadable (GPR) products.” Legal Speaking According to Jonathan S. Marashlian, a member of The CommLaw Group in McLean, Virginia, one of the legal issues we face is the application of state escheat laws to open loop debit cards. Escheat laws essentially stand for the proposition that if there’s an unused balance on a debit Need ? Need Free Terminals? Need A Reliable Supplier? We seek ISO’s and Agents that want a safe, secure, and reliable POSA processing partner. No agent relationship is too small. We O er: AS A PART OF THE WORLD’S LARGEST PROVIDER OF PREPAID, WE ARE THE SAFE, SECURE, AND SMART CHOICE FOR ANYONE THAT WANTS A RELIABLE BUSINESS PARTNER. Call today for immediate service: 800-263-2370 http://www.olatel.com http://www.olatel.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - February 2009

Payments & Processing: Prepaid Debit Card Trends Contents The Retske Report: A Courthouse Divided Regulatory Rundown Prepaid Business: 5 Minutes With Darren Dat Lu, CEO of Lunex Group Prepaid Telecom: International Mobile Top-Up Virgin Mobile USA Compliance Plan Accepted by NYSE Tata Communications Launches One IP World KIT Communications Selects PhoenixSoft Sprint Nextel Increases Payments to Virgin Mobile Motorola, Sprint and Boost Mobile Welcome iDEN Flip PhoenixSoft Announces New Program Virgin Mobile Partners with Susan G. Komen The State of Prepaid Technology: Prepaid Virtual Operators Emerge Prepaid Wireless Roundup Boost Launches ‘Monthly Unlimited’ in More Cities Cricket Selects Callidus On-Demand Solution ICC Worldwide Expands Prepaid Products IPsmarx Launches SIP Based Card Platform The Legal Line Prepaid Telecom in Brief Pinnacle Rolls Out Ingenico’s Payment Terminals TransCard Makes Staff Announcements H&R Block Bank Selects MasterCard Avangate Pays Vendors and Affiliates with Prepaid MC TIO Networks Announces Grant of Stock Options TSYS Offers Enhanced Loyalty Solution First American Payment Systems Inks Deal with RDM Hypercom Introduces HyperSafe Remote Key System i2c Expands Team iPayStation Integrates with Movistar Payments & Processing in Brief New Javelin Report on Evolving Prepaid Card Market TransCard, Socialwise Plan to Revolutionize Prepaid Congresswoman Introduces Financial Literacy Act Industry Analysis on Mobile Banking Available Gift Cards & Promotions: Seven Cost-Conscious Marketing Strategies for 2009 Ntreev USA Announces PvP Tournament hhgregg to Help Circuit City Customers NRF Releases December Industry Sales Cellfire Expands Kroger Mobile Coupon Program Petrofix.com Offers a New Fuel Solution Gift Cards & Promotions in Brief Our Advertisers Contact Us

The Prepaid Press - February 2009

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