In the beginning, there were calling cards that made it possible for immigrants to connect with family and friends back home. Many of those unbanked and underserved consumers, which today make up about 20 percent of the population, struggled with managing their finances — from cashing checks and paying bills to getting established with a bank account and building credit.
In 20 years plus, prepaid services and products have expanded from phone cards to online portals to a multitude of utilities and apps, empowering hard working consumers to function without bank savings accounts and check books. The current demand for innovative prepaid cards and virtual services has moved these tools to the epicenter of financial models.
The record turnout at tppEXPO’13 shows how far we have come. Technical sage and savvy marketer Eric Dumois, Senior Manager, Mobile Financial Services, MetroPCS, was this year’s Keynote speaker at our two-day conference. Presenting an overview of “The State of Prepaid: Changing Perceptions” and what it means for retailers, Dumois detailed the evolution and maturation of prepaid services, delivering unbanked and underserved individuals into the financial mainstream.
“These are great times to be in the financial services industry,” said Dumois. “The experiment is over. We have already seen the avant garde usher us into a new era of mobile financial services and we are witnessing more traditional financial institutions moving into the space as well.”
This year’s sixth annual conference showcased more than 30 prepaid experts and analysts who discussed every aspect of prepaid services, including prepaid wireless, international top up, general purpose reloadable (GPR), digital gifting, payroll and gaming utilities, NFC and EMV technology, and the entry of banks into prepaid. Four prominent platform providers spoke on setting rates, routing traffic and the cloud business model.
One attendee, Chris Erickson, executive director, 360 Incentives, said, “This year’s Prepaid Press Expo gave us a valuable checkpoint of the state of what has been a year of aggressive evolution in the prepaid market and technology. It’s difficult to keep track of the fast evolving market for GPR, gift and spend cards, and how each of the market participants is driving change. The combination of expert consultants and senior executives did a good job putting last year’s changes into perspective and framing this year’s expectations.”
A Plethora of Changes in Prepaid Wireless and Financial Services
Dumois spoke about the many changes that make consumers the beneficiaries of better technology. Prepaid international long distance cards are being replaced with PIN on receipt and a short code on the phone to a direct line. They are also being replaced with value-priced bolt-on offerings from the wireless carriers that provide access to consumer’s destination without having to dial an 800 number to connect.
General purpose reloadable cards with web access to balances are being replaced with secure mobile applications with companion GPR cards, that not only offer balances inquiries and receipts, but also offer a plethora of other financial services and functions.
Traditional gift cards are being replaced with electronic ones that are purchased and gifted right from one phone to another phone. “Just the other day, I was able to send my daughter who lives in Orlando a Walmart egift card from the convenience of my home. She received it on her phone and was able to go to the store that day and use it,” said Dumois.
“From my perspective, you are all at the right time and in the right place to make the right things happen,” Dumois affirmed. “Your companies are in a position to empower everyone in the US that would prefer prepaid over credit or bank debit.”
Prepaid Means Different Things to Different People
Anyone can use a prepaid card as a useful financial tool or for simply maintaining a budget. “For the banked, more established consumer, it’s for ease of use and protection from identity theft that prepaid affords them,” said Dumois. “Service providers with the right mix of features and functionalities stand to be beneficiaries from these consumers.”
“Other consumers like the unbanked and underserved are starving for inclusion,” noted Dumois. “They want the same freedoms that the banked demographic enjoys today.”
Consumers are looking for inclusion but they also want to know that secure methods are being used to make transactions. They want innovative methods of performing financial tasks, such as checking balances, paying bills, remitting money domestically and internationally, and making a deposit into their account through remote check capture. They want to be able to transfer money from one account to another person’s account, and receive instant cash back rewards that put money back into their accounts as quickly as when the transaction takes place. And more and more, consumers want to do this from the convenience of their phone.
Trusted brands are entering the space, noted Dumois, including T-Mobile/MetroPCS. Remittance companies such as MoneyGram to retailers such as 7-Eleven and Walmart are changing the consumer’s mindset and perception about payments. “It was just a few years ago that a well-known coffee house began to change the mindset of coffee drinkers everywhere and we all began to prepay for our coffee using a mobile app,” Dumois mentioned.
Mobile Banking Applications That Do Everything
MetroPCS launched two applications this year: DeviceFidelity’s Moneto and GreenDot’s GoBank. Subscribers can download these mobile banking applications, which offer balance and electronic receipts right from their phone. In addition, users can pay their bills, remit money domestically and electronically, deposit a check directly into their account through remote check capture, transfer money from one account to another person’s account, and get cash back rewards instantly.
Dumois posed this question to providers: Is there room for all players in the market or will there be a few that will dominate the space? The answers: There is room for all players to profit. There is interdependency. To this point, Dumois said that joining the right ecosystems will be imperative for all players to coexist. For example, DeviceFidelity’s Moneto mobile banking solution uses MoneyGram for remittance.
“Together the application is more appealing to MetroPCS’ main demographic as they can use a trusted brand they currently use for remittance today,” said Dumois.
Trends in Prepaid Wireless and International Top Up
New web portals are making it easier for retailers to sell prepaid long distance and simpler for customers to buy minutes and manage their accounts. Matt Kerper, head of sales, prepaid programs, PayPal, moderated a discussion with Alexander Byron, VP, Client Services, Nielsen; Kunal Kumar, VP, Business Development, PayNearMe; Patrice Peyret, CEO, Plastyc; and Joshua Rush, VP, Marketing, Vesta. The group talked about simplifying the delivery of mobile top up, comparing a bank account to a card account. Plastyc allows consumers to take money out of the bank and put it onto a card, then send money home. Vesta creates white label top up solutions for carriers and more. PayNearMe works as a bridge between retailers and consumers.
True, there is confusion in the marketplace because so many apps exist. Starbucks stands out because the brand evokes trust, but otherwise it seems to be one app at a time, experts noted. All agreed that bill pay is the next logical function for top up, which is evolving to include a more comprehensive suite of financial services.
Patrice Peyret said that the biggest game changer they have seen is pay as you go, unlimited all-you-can-eat in a month. Kunar sees a consolidation of prepaid services. Alex Byron foresees phones getting cheaper and changing MVNOs. Rush said that mobile wallets will change.
MVNOs and Platform Providers
Erin Anderson, VP, Indirect Sales, Ultra Mobile announced its newest plan called Ultra Zero and talked about ways to differentiate your brand from others in the competitive MVNO space. Ultra was first launched in October 2012, and secured a place in the crowded market by focusing on brand marketing, price and customer service. “We are finding success by matching innovative products with customers’ needs,” noted Anderson.
Marketing expert Nate Moshkovich, EVP, ClearLine Mobile stressed how loyalty is key to keeping down churn. He advocates capturing data and listening to customer feedback. “The more data the better the marketing,” said Moshkovich. “SMS engages the customer and is still the best channel. Stay out in the field with retailers and get their feedback.”
Platform providers, including Arnie Goodstein, Pete Pattullo, Neil French, and Brian Pla, discussed the evolution of turnkey hosted solutions for card providers, how their platforms automatically set rates and route traffic efficiently. Quality without any down time is critical. Web-based software makes the hosted carrier platform the best means of navigating calls in a high volume market with an excess of international carriers.
Pete Pattullo, CEO, NetworkIP, said that portals keep changing. His company has been evolving retail and consumer based portals and “we are now on our fifth version.” Pattullo pioneered a B2B hosted services in the “Cloud” business model.
Arnie Goodstein, CEO, WCGS & NACT Solutions, noted that pinless products are moving forward, sold as hard cards, via web portals or through ecommerce or mobile POS. Neil French, Chief Technology Officer at Digitalk, described how their customers tailor their services, bundle packages and add features. “Our services allow users to manage multiple branded products with baseline rates and features,” said French.
Brian Pla, VP Sales, Auris Technology, said that because of technology today, service providers are able to utilize the power of the cloud to develop successful business models. “Services can be instantly activated, investment and operating costs can be significantly reduced,” said Pla.
Banks Move Into Prepaid
Peter Quadagno, president, Quadagno Associates, moderated a thought-provoking panel discussion on Banks Move into Prepaid, an important topic as banks have suffered loss of revenues from debit fees, a result of the Durbin Amendment. Small banks and credit unions, in particular, are trying to make up losses by expanding into prepaid services.
In her talk, Donna Embry, SVP, Payment Alliance International, noted that banks are good at relationship marketing, but not good at merchandising. Prepaid providers are good at merchandising while banks are not good at marketing to the unbanked and underbanked.
Ben Jackson, senior analyst, Mercator Advisory Group’s Prepaid Advisory Service, said, “As banks enter the business and the industry matures, consolidation is occurring, and prepaid suppliers are looking to include prepaid as part of a larger financial services package.” He described the prepaid market as being made up of 11 categories and 27 market segments, according to studies by Mercator Advisory Group.
Jackson said “the speed of growth has slowed down a little” although by 2015, it is projected that $500 billion will be loaded on cards in all segments. How did this happen? “Consumers understand prepaid telecom so they began to understand prepaid financial services.”
Mercator depicts the Prepaid Value Chain, indicating why margins in prepaid are thin. There are generally multiple participants in the value chain that directly drive both revenues and cost in any card program. The more roles a single entity can take on, the more profitable the card program, said Jackson. The value chain includes: Cardholder, Acquisition Point, Distributor, Program Manager, Service Provider, Issuing Processor, Issuer, Payment Network, and Merchant Processor (Mercator Advisory Group, 2012).
One answer to entry into the prepaid market and to profitability is to reinvent the prepaid model by designing agent programs for small banks, added Embry. The model could include white label cards with branding, revenue sharing with agents, and a surcharge free ATM network.
Market products ripe for banks are bill pay, which is the next coming extension of the prepaid market, as well as GPR and gift cards. Kiosks and self-service work well for convenience stores and banks can do it too, noted Embry.
“Banks could offer FDIC Insurance and expand products to include bill pay, P2P, and leveraging technology through internet and mobile channels,” said Embry. “Banks could also find a way to build credit scores or credit score history.”
Sankar Krishnan, Global Client Engagement, Banking & Financial Services Practice, Sutherland Global Services, reasoned why banks should enter the prepaid market:
• The open loop prepaid card market is growing across countries and is expected to reach $822 Bn of gross dollar volume (GDV) by 2017 at a CAGR growth of 22 percent from 2010.
• Total Dollar loaded on the closed loop prepaid card is estimated to be $ 243.6 Bn in 2012. Growth of closed loop prepaid card is relatively stagnated and is expected to remain the same in the near future.
• In addition to the US, several other countries including Brazil, Mexico, Italy, UK/Ireland, India, Canada, Russia and KSA/UAE are expected to play a key role in driving the growth of prepaid through 2017 and they are expected to contribute a cumulative 31 percent of the open loop prepaid card market.
Todd Nuttall, CEO, Better ATM Services discussed how prepaid grew outside of banks. “We went through a financial revolution,” said Nuttall. “…56 percent of bank customers use prepaid but nine out of 10 go elsewhere to buy cards at c-stores or grocery stores. Banks missed out on merchandising prepaid thinking they were not important financial instruments.”
“There is money to be made in prepaid, through fees at sale, float (money held in the bank), and interchange fees, every time a card account is swiped,” Nuttall noted. Better ATM Services has tied ATM and the prepaid card together, beginning in Arizona where consumers can get prepaid cards and gift cards right at the ATM. Software and a micro-module is required to make banks a convenient distribution point.
Prepaid has become a viable alternative to traditional banking, making it an opportune time for banks and credit unions to compete with the Walmarts and Green Dots in the prepaid market. Forming solid partnerships with prepaid veterans can make it happen.
Source: http://www.prepaid-press.com/wordpress/?page_id=5395