Within recent weeks, both Visa USA and MasterCard Worldwide announced their first merchant partners for their prepaid card reloading networks. And Discover announced its first reloadable prepaid card, which will use the existing Green Dot network to enable cardholders to add more value to their accounts.
Why the sudden rush to reload? Analysts see the networks as positioning themselves to attract new customers from the estimated 80 million Americans who have no bank accounts or only tenuous ties to mainstream banks. Those unbanked individuals spend $1.5 billion a year in check-cashing fees, Visa says, so they presumably would be willing to pay to use prepaid cards that offer more benefits than carrying cash and paying bills with money orders.
But convincing millions of people, many of them leery of traditional banks, to change their behavior will take time. Mercator Advisory Group says there was only $710 million in value loaded in 2005 on the kind of general-spend cards targeted at those without bank relationships, or only about 5% of the $14.1 billion in value on "open-loop" prepaid cards with such major network brands as Visa, MasterCard, American Express and Discover. That figure will grow to $1.9 billion by 2009, Mercator predicts.
So the recent announcements are about building for the future, analysts say.
"The networks out-pace the current usage," says James Van Dyke, president of Javelin Strategy and Research, a consulting firm based in Pleasanton, Calif. "By and large, they're being built for future demand."
Being able to reload value onto a prepaid card at shops that a consumer goes to regularly is an important first step toward making prepaid cards more attractive, says Tim Sloane of Mercator. But the card networks and prepaid processors have much work to do to make prepaid cards attractive to the unbanked, he says.
With their announcements, Visa, MasterCard and Discover have taken the first steps toward making it possible for cards carrying their brands to be used over and over by consumers who do not patronize banks.
The first news came last month from Visa, which said that supermarket operator Safeway Inc., parent of prepaid card provider Blackhawk Network, would become the first merchant to use the Visa ReadyLink prepaid load network. Safeway's 1,550 stores include Carrs, Casa Ley, Dominick's Finer Foods, Genuardi's Family Markets, Pak 'n Save, Pavilions, Randall's Food Markets, Simon David, Tom Thumb Food and Pharmacy and Vons.
Safeway's Blackhawk subsidiary distributes a variety of gift cards and reloadable prepaid cards to some 60,000 retail locations, and those merchants could be brought into the ReadyLink network as well, says Todd Brockman, Visa USA's senior vice president of prepaid products. But initially only Safeway's own stores will participate in the program.
About two weeks after Visa's announcement, MasterCard announced that prepaid card distributor InComm would promote MasterCard's rePower reload network to its distribution network of 145,000 merchant locations. MasterCard also announced that the first reload had taken place at one of InComm's clients, Village Pantry, which has 252 locations in Indiana and Ohio.
Instead of building its own reload network, at least initially, Discover Financial Services decided to use the 50,00 merchant locations within Green Dot's network. Discover, which is based in Riverwoods, Ill., began selling its first reloadable prepaid card in CVS pharmacies in January. The cards cost $9.95 each.
Tom Crowder, Discover director of network strategic development, says Discover is leveraging an existing network, while Visa and MasterCard are creating their own by signing up merchants. "There's a merit to both approaches," Crowder says.
But, notes Mercator's Sloane, none of the networks is anywhere near reaching all the locations where unbanked consumers go. Many are small mom-and-pop shops that cater to lower-income and immigrant communities.
That is why Visa and MasterCard are reaching out to distributors such as Blackhawk and InComm to draw merchants into their networks, instead of waiting for processors to bring these merchants into the reload network.
(c) 2007 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
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