Increased government interest and growing consumer adoption will help push the total funds loaded into prepaid card accounts to $672 billion by 2013, concludes a report from the Mercator Advisory Group.

That figure is more than double the $330.03 billion loaded into prepaid card accounts in 2009, the report states.

Mercator expects open-loop card deposits to exceed closed-loop value in 2011 as such government sectors as state unemployment benefits, court-ordered payments and Social Security benefits continue to migrate from checks to plastic.

Those segments continue to grow because government sectors constantly load funds into the card accounts, unlike general-reloadable cards that depend on the consumer to make deposits, says Tim Sloane, director of Mercator’s prepaid advisory service and the report’s author.

“The more of those [government] cards you have, the more loads happen, and that has a significant impact on the numbers,” Sloane says.

State unemployment and Social Security benefits experienced the highest deposit growth rates in 2009. Funds loaded into open-loop card accounts for unemployment benefits increased 292%, to $23.1 billion, up from $5.9 billion in 2008. Mercator expects that segment’s prepaid card deposits to increase to $52.7 billion by 2013.

Funds loaded into open-loop card accounts for Social Security benefits increased 209%, to $3.4 billion from $1.1 billion in 2008. Mercator expects that segment’s card deposits to increase to $13 billion by 2013.

The company also expects continued growth with network-branded gift cards despite recent regulatory changes stemming from the Credit Card Accountability, Responsibility and Disclosure Act that put more restrictions on expiration dates and fees.

Two assumptions about the CARD Act should help drive greater consumer use of open-loop gift cards, the report states. The law requires gift card display racks to display compliant cards in a separate area from merchant gift cards. And fee restrictions also should increase consumer trust in the product, the report says.

Funds loaded into network-branded gift cards increased 32.5% last year, to $10.2 billion, up from $7.7 billion in 2008. Mercator predicts deposits in that card segment to increase to $26.2 billion by 2013.

Merchant gift cards continue to dominate the closed-loop gift card segment. Those cards represent 87.4% ($70.4 billion) of the total gift card market ($80.6 billion) in 2009.

Though the total funds loaded into merchant gift card accounts only increased 3% from $68.3 billion in 2008, Mercator expects that segment to increase to $82.8 billion in card deposits by 2013.

Merchant gift card growth has slowed because “most merchants have not recognized their business model needs to change,” Sloane says. Merchants are failing to accurately market the cards to their customers, he says.

Business models, however, will change in the next three years as merchants recognize the need for change and adjust accordingly, Sloane says. Mobile and other technology advances at the point of sale should help play a role, he adds.

 

 

 

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