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Open-loop prepaid cards are invading market segments once solely controlled by closed-loop cards, and this is helping slow the rate of growth in funds deposited into closed-loop card accounts, according to a study by Mercator Advisory Group Inc.

"This expansion of open-loop spend into closed-loop markets is a noteworthy trend," Mercator writes in its "6th Annual Network Branded Prepaid Market Assessment."

Still, the amount of funds loaded into closed-loop prepaid card accounts is more than three times the amount loaded into open-loop accounts. In 2008, cardholders loaded $187.2 billion into closed-loop card accounts, up 4.2% from $179.6 billion the previous year, Mercator says. By comparison, cardholders loaded $60.4 billion  into open-loop card accounts, up 48% from $40.7 billion, according to Brent Watters,  Mercator senior analyst for prepaid. In 2006, cardholders loaded $171.7 billion into closed-loop card accounts.

One illustration of a transition affecting consumer use of prepaid cards involves transit, Watters says.

The Chicago Transit Authority, which operates the nation's second-largest public transportation system based on annual ridership, for example, in August issued a request for a proposal that calls for development of an open-loop, contactless debit or credit card (ADN, 8/27). Accepting open-loop cards for rides would reduce deposits into proprietary closed-loop transit cards, Waters says.

Issuers of open-loop cards also are targeting food-stamp programs and college students, two markets historically dominated by closed-loop cards.
Mercator reports that the campus category for open-loop cards reached $970 million in 2008, up 28% from $760 million in 2007.

The nation's slumping economy also has affected the amount of funds loaded into closed-loop cards accounts. "The underperforming segments were closely associated with consumer spend that was impacted by the recession and reduced corporate spending," the study report notes.

"These included relocation, down 12.6%; events and meetings, down 6.3%; and business travel, down 3.8%." Reduced company investment in closed-loop cards also is stifling their growth, the study found. "Few investments are being made to create innovative solutions that increase the value of closed-loop cards," the report notes. Still, some closed-loop segments reported growth, including such fast-growing market segments as digital media, which grew in by 24% last year; consumer incentives, by 19%; and petroleum, by 23.2%.

Despite the growth in these market segments, they were unable to compensate for several large segments that underperformed,  Mercator says. ATM

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