Merchants are eager to sell prepaid cards to increase revenue, and they'll be looking to expand their offerings through partnerships with prepaid providers and networks, according to a new report from Aite Group.

"Merchants of all types have begun to sell prepaid cards aggressively, including closed- and open-loop cards, gift and prepaid debit cards, cards with merchant branding and network brands," says Madeline Aufseeser, senior analyst in retail banking with the Aite Group in the report. 

Aite Group and InComm, a prepaid technology provider, surveyed 35 merchants, of which 63% were convenience stores.

Large retailers are selling a diversified set of prepaid products, with more than 70% of the merchants surveyed selling open-loop gift cards, closed-loop gift cards and proprietary branded cards.

According to the survey, 89% of merchants offer closed-loop third-party gift cards, with prepaid debit cards and the merchant's branded closed-loop gift card coming in at 74%. Prepaid debit cards are the most popular products to add in the next two years.

Seventy-four percent of merchants say they have no plans to add company-branded open-loop gift cards. Instead, "merchants are now on the lookout for partnership opportunities with payment providers—opportunities that deliver on incremental revenue or new services that enhance the consumer shopping experience," Aufseeser writes.

And while less than half of the merchants are partnering today for their prepaid products, a growing number of merchants plan on partnering by 2015.

To appeal to merchants, providers may want to offer virtual prepaid products and digital wallets. Starbucks, for example, has had success in offering a mobile version of its closed-loop card, with 14% of its in-store payments coming from its mobile app. While Starbucks product is proprietary, Jamba Juice has partnered with Isis and PayPal to provide mobile wallet products to its customers.

"Merchants may also benefit from experimenting with giving away gift cards as an incentive to drive higher sales of goods and services and look more to evaluate location-based marketing solutions based on their long-term potential rather than the initial level of investment," Aufseeser writes.

Marketing gift cards to drive sales is the most important initiative for 89% of the merchants surveyed. But generating revenue from third party cards is close behind with 77% of merchants saying this is an important initiative. And 60% of merchants say increasing loyalty through regular use of prepaid cards is of importance.

"Prepaid card sales equal high-margin revenue," Aufseeser writes. "Therefore, expect large merchants such as big-box stores, drugstores, grocers, and convenience stores to stock full displays with more varied prepaid card types and brands."

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