The Prepaid Press - March 2009 - (Page 7)

PREPAID BUSINESS March 15 · 2009 - 7 Brooks Smith, President and CEO of InComm Interviewed by Gene Retske 5 MINUTES WITH 5%. GR: That’s a 16% shift. BS: It is a big shift. If you think about it, it’s a devastating statistic to economic growth because that means no money is going into the economy to grow. On the other hand, it went at the expense of people spending more than they earned. I think we will see a greater attraction to prepaid products because they don’t require contracts. They are not going to require people to go into debt. They are, in many cases today, lower cost. But, consumers will buy in smaller denomination, and more frequently, just because of the cash flow issues. GR: What is the impact on distribution channels of all this? Are they changing? BS: Well, yes, there are a lot less retailers around, right? GR: BS: The doors are slamming! There are two dynamic changes we are seeing. One is an expansion into some non-traditional retail, which is good. At the same time, we are seeing retailers, like Circuit City, that could not maintain their business. There are certainly less customers around as far as retail distribution goes. All that is, is a shakeout of the weak and the strong. GR: What advice would you offer retailers about prepaid products? BS: For those in the industry, be very focused on the consumer and how you help them. I built this business by thinking about the guy that couldn’t make a phone call, or couldn’t get a wireless phone, or the person who couldn’t get access to credit or debit to pay their bills. There are customers out there that need help, the underserved. The most successful companies are those that focus on how they service those people better. Brooks Smith is President and CEO of Interactive Communications International (InComm). Visit InComm online at www.incomm.com. When he founded InComm in 1992, Brooks Smith set two objectives: To provide needed services to those that cannot otherwise get them, and to create markets for retailers. The company’s mission statement is,”We make it easier for consumers to buy things, and we make it easier for retailers to sell them.” Smith used his experience as a POSA pioneer to create a network that connects leading prepaid product providers with the world’s largest retailers. This unique focus has enabled InComm to not only survive the economic crisis, but to thrive as a result. How can that be? Smith offers his thoughts. GR: What has been the impact of the economic woes on the prepaid business? BS: I think, in general, it is actually helping the business. Obviously, consumers have gravitated to our products when the economy was tough or there were natural disasters or issues or things that affect the economy. This is an unusual economic event. This is not your normal recession. I would call it far from normal at this point. GR: I am not sure I know what it is. BS: I don’t think they have a definition for it yet, to tell the truth. When I got into this business, I felt that it was an industry that helped people who were typically underserved, or not served at all. That made it more recession proof because they were consumables that people needed. I don’t think anything has changed there for most of the business. We are far more diverse than we were in 1992, our line of products is more diverse, and so we are seeing expansion in the market. Nearly all of our product lines went up in 2008, substantially, with the exception of third party gift cards, which saw only a very slight increase for us. But, in the market, it actually saw a downturn. GR: Why did third party gift cards drop so much in 2008? BS: Consumer confidence in ‘08 was greatly impacted by the negative publicity about retailers going out of business and not honoring gift cards. That had a huge impact on the retail gift card industry in the fourth quarter. It could not have come at a worse time, and then the press hyped it. In most cases, gift cards got honored; it was not a significant situation. But, every retailer suffered from that publicity. People gravitated away from third party gift cards, from retailer branded gift cards, but fortunately for us, what we didn’t see there gravitated over to open loop and Visa gift cards. GR: How has this impacted the importance of gift cards to the retailer? BS: If you look at the evolution of retail gift cards, it is not a sales opportunity business unit for the retailer. It is a cost element. So, ‘gift card’ is a couple of people working in the back room at the retailer, not a whole team and a department all around gift cards. It’s a cost element that they hate. They have to print the cards, sell the cards. They used to sell gifts, now they sell cards and the cards get redeemed after Christmas as the gift. GR: And they have to give away some of the margin. BS: That’s right. Most retailers have a year end of January 31st, or February 28th, because they have to get that gift redemption, and it has to level out between the returns and the redemption through the holidays. The impact on gift card sales from the drop in confidence significantly hurt them in January. A retailer can’t count the money from a gift card sale until the customer spends it. When he takes the money, it is nothing more than a deposit. They have to wait for the spend to get any revenue for it. Otherwise, it is a liability on the books, nothing more than a deposit. GR: Your growth is independent of economic conditions, then? BS: There are several parts to the growth. Some of it comes from the organic category growth. Others come from expansion or things we are doing in the marketplace. Some people in the industry ride the market, we create the market. We create new product lines and create new demand, and become the masters of our own destiny, generating more demand and growth. You can’t sell just what is out there, you’re just going to grow at what the organic category growth is. GR: What will be the long term impact of the weakened economy on prepaid? BS: I think we are going to see a paradigm shift to more prepaid. I think it is also going to affect what people buy, denomination wise. You are going to find people buying lower denomination cards, whether it is wireless top-up or gift or any of the products. They may buy more cards, but they are going to buy them smaller bits at a time. People are saving more and holding on to their money longer. I heard a statistic yesterday that we have gone from a market where the consumer was spending 11% more than they were bringing in, leveraging credit, to where they are now saving Regulatory Rundown from page 6 transferred to individuals or merchants in a manner similar to currency. The report cites an Immigration & Custom Enforcement/Internal Revenue Service investigation into a stolen credit card number network operating in Mexico that found co-conspirators were being paid by a criminal organization with gift cards issued by U.S. retailers. The gift cards were then used to purchase mobile phone cards, which were smuggled into Mexico and sold at a profit. The report is insightful to Stored Value and MPayment compliance officers in that it highlights the potential misuse of SVCs and Mobile Payment Systems that could be thwarted by better coordination with issuers, or even in product security design. 4. Stored Value/Gift Cards: First Quarter 2009 Gift Card Legislation to Watch Although still early in the legislative sessions, the state legislatures are proposing a number of Bills that would directly affect the Closed Loop and Gift Card Industries. Some of the more interesting Bills to track during the next two Quarters are: 1. INDIANA HOUSE BILL No. 1529 provides that a person may not issue a gift card that is subject to any expiration date or a fee. On January 16, 2009, Bill was first read and referred to Committee on Commerce, Energy, Technology and Utilities. Expected passage and Effect: July 1, 2009. (Emphasis added by Regulatory Rundown) 2. MISSOURI HOUSE BILL No. 198 prohibits the use of expiration dates earlier than five years after the date of issuance, or, any postpurchase fees on gift certificates sold in Missouri. Any gift certificate issued on or after August 28, 2009, will not reduce in value and the holder cannot be penalized in any way for non-use or untimely redemption. Violations of the provisions of the Bill will be considered unfair merchandising practices and subject to penalties. Expected passage and Effect: August 28, 2009. (Emphasis added by Regulatory Rundown) 3. NEW JERSEY SENATE BILL No. 566 prohibits display of gift card account numbers. This Bill would make it an unlawful practice to sell gift cards unless they are packaged or displayed in a manner that would prevent a person from viewing the gift card account number prior to purchasing the gift card. The Bill targets a popular scam for criminals to record gift card account numbers while in a store, and use the customer service telephone number to verify if the card has been activated. Once it is, they quickly make Internet purchases using the gift card account number. This legislation is designed to protect consumers by guaranteeing that their gift card account numbers remain private prior to purchase. Packaging contrary to the proposed Bill is an unlawful practice under the Consumer Fraud Act is punishable by a monetary penalty of not more than $10,000 for a first offense and not more than $20,000 for any subsequent offense. In addition, a violation can result in cease and desist orders issued by the Attorney General, the assessment of punitive damages and the awarding of treble damages and costs to the injured party. Expected passage and Effect still open as committee debate over Bill continues. (Emphasis added by Regulatory Rundown) Edward Maldonado is a regulatory attorney based in Miami, FL and the CEO of Regulatory Back Office, Inc., a regulatory group that procures regulatory registrations and files compliance reporting for telecommunicat http://www.incomm.com http://www.olatel.com http://www.info@olatel.com http://www.olatel.com

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

The Prepaid Press - March 2009 Contents The Retske Report: A Disconnect in Connecticut Regulatory Rundown 5 Minutes With Brooks Smith, CEO of InComm TracFone Launches SafeLink Wireless in NY iPayStation Enables International Top-Up Comverse Launches Next-Generation IMS Solution Prepaid Companies Agree to Pay $2.25 Million Prepaid Telecom in Brief Boost Mobile Reintroduces Itself Virgin Mobile Announces New Branding Campaign The State of Prepaid Technology: Becoming a Virtual Operator Prepaid Wireless Roundup New Prepaid Calling Plans from Verizon Wireless The Legal Line Jobless Benefit Debit Card Usage Debated InsurCard Provides Catastrophic Relief Solution Metavante, Monitise Americas Launch Text Banking TransCard Provides Personal Financial Management Walmart to Help Americans Manage Finances Payments and Processing in Brief Prepaid Consumer and Employee/Partner Incentives CashStar Launches Interactive Gift Card Platform VIPGift Continues Sales Expansion Pentagon Installs Unique Card Personalization Line Digital Promotions Grow in Popularity The Ultimate Gift Card Network Retail Sales Show Unexpected Rebound Smart Transaction Systems Selects Hypercom GiftCards.com Acquires Swapagift.com InComm Gaming Opportunities on the Rise VCT Adds Equipment to New Jersey Facility Gift Cards and Promotions in Brief Our Advertisers Contact Us

The Prepaid Press - March 2009

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