When Ukash began selling its prepaid vouchers in Ontario, Canada, in early October, the British firm's first push into North America, the move signaled a deepening battle with its main competitor, Austria-based Paysafecard Group.

The two companies already had set up voucher-distribution networks in Europe, where the firms hope to capture customers who prefer to use vouchers instead of payment cards for online transactions for gambling and buying video games and airline tickets. Both also are targeting South America. In June, Paysafecard announced its expansion into Argentina, three months before Ukash's announcement in October of its expansion into Uruguay, right across the Rio de la Plata from Argentina.

"South America in particular is a very attractive cash market," says Michael Mueller, Paysafecard CEO, noting his company also is eying Brazil, the most populous country in South America, though he gave no dates for a possible entry.

Meanwhile, Ukash, which has received feelers from merchants in Japan, is looking to expand into the Asia-Pacific region, perhaps within the next two to three years, says Paul Coxhill, marketing director for the United Kingdom-based firm. The two firms' expansion plans, marked in dueling press releases issued over the past few months, come as more consumers throughout the world are embracing both prepaid cards and online shopping. So despite the recent expansion and market opportunities, some observers question to what extent the market for prepaid vouchers can grow, especially as branded prepaid cards gain in popularity.

Ukash, the trading name of Smart Voucher Ltd., operated in at least 16 countries as of early October, while Paysafecard operated in at least 20. More than 3,000 online merchants accept Paysafecard vouchers; similar figures from Ukash were not available. Some 230,000 merchant locations sell Paysafecard vouchers, including petrol stations in Germany, payment-network sites in the UK operated by PayPoint PLC, Caixa Galicia ATMs in Spain and post offices in other countries.

Ukash claims 275,000 points of purchase.  Each voucher, available for purchase in specific denominations that can vary by country, has a unique numeric code.

Paysafecard vouchers have 16-digit codes, while Ukash vouchers have 19 digits. Customers enter the codes on the online sites when making online transactions.
In most cases, customers do not pay fees for the vouchers. Instead, the voucher scheme collects what Coxhill calls "redemption fees" from merchants, normally a percentage of the transaction, not a flat rate. The rate is "typically higher than for a credit card transaction," he says, adding the higher rate reflects the fact that vouchers incur no charge-backs and reduce cash-handling expenses for the merchant.

Neither Mueller nor Coxhill would specify the rates, saying only they vary by market and volume. Coxhill says Ukash offers "incentives" for merchants who sell the vouchers but declined to discuss details.

Consumers in 2008 made 20 million transactions with Paysafecard vouchers, Mueller says. Ukash would not provide specific transaction figures, though Coxhill says volume and transactions amounts are more than doubling each year.

Coxhill contends a "myriad" of consumer motivations exists for using prepaid vouchers, saying a database that includes some 100,000 Ukash customers who have signed up for information updates about the scheme suggests that more than 80% have bank accounts. Unbanked consumers represent part of Ukash's customer base, "but not the biggest part," he says.

A "high percentage" of users have experienced online fraud, Coxhill adds. "Also, some people don't want [payments to] gambling sites to appear on bank statements," he says.

At Paysafecard, the typical customer ranges in age from 18 to 50 and has a bank account, Mueller says. "Most have bank accounts, but not all have credit cards," he adds.

Consumers often want to use vouchers because many online merchants do not accept domestic payment cards, providing an opportunity for prepaid voucher schemes. "The number of people who cannot shop online is in the billions," Coxhill says. "There is so much potential to grow."

Figures from the UK Cards Association support his point regarding growth. Online shoppers in the UK spent 41.2 billion pounds (US$65.5 billion) in 2008, up 524% from 6.6 billion pounds in 2001, according to the trade group for issuers.

Other firms also offer electronic vouchers. Retail Decisions PLC manages a site called giftvouchers.com that offers retail-branded vouchers for such goods as books, music, hotels, jewelry and hardware, says Carl Clump, CEO of the UK-based firm. Consumers buy the vouchers at the site, and the company delivers them  via e-mail for use at participating merchants. The site, which includes some 110 retailers, serves only Australia and New Zealand.

Retail Decisions charges a transaction fee to the merchant that issues the vouchers and a "redemption fee" when the voucher is used, Clump says. He declined to provide specific transaction data, though he says "we expect to increase our merchant base by approximately 20%" over the next year, with the electronic voucher sales growing by a "similar percentage."

Retail Decisions' main rival is open-loop prepaid cards, Clump says.
Indeed, such competition could hamper growth for at least some prepaid voucher firms, says Adil Moussa, an analyst at Boston-based consultancy Aite Group LLC. "There are a lot of inherit advantages in using a card that you don't get in vouchers," Moussa says. "You don't really need to reinvent the wheel."

Moussa is unsure how much promise the prepaid voucher market holds and questions whether the revenue model is strong enough.

"I don't know if there is a long-term market for it," he says. "Eventually it will switch to prepaid cards. There are so many fees you can charge on a prepaid card that you can't charge on a coupon, [such as] maintenance fees and statement fees. Plus you have the interchange rates."

However, prepaid vouchers may hold appeal for migrant workers "who don't really have a bank account and want to make purchases online," Moussa says.

Another uncertainty is how much consumers really worry about the security of online transactions, Brian Walker, CEO of Australia-based retail consultancy firm Retail Doctor, said in comments made to Australian business publication SmartCompany earlier this year when Ukash announced its expansion into Australia and New Zealand.

"The topic over the first few years of online payments was about whether it was safe enough," he said. "But the relative security of making online payments has been addressed, and there's confidence in that area. So to some degree that mitigates the central thrust of the Ukash offer."

The schemes also face the difficulty of converting change from voucher transactions into "real money" and doing so without violating anti-money laundering laws, Ukash's Coxhill says. Determining a simple method to do this would make it much easier for consumers to use vouchers for retail goods that require delivery to one's house, as opposed to digital purchases or games.

Despite such uncertainties, Ukash and Paysafecard remain bullish about the future. The two firms have begun moving into mobile payments by working to enable consumers to buy and receive vouchers via mobile phones and text messages.

Earlier this year, the two firms both signed deals with the Universal Air Travel Plan, or UATP, that enable consumers to use their vouchers to buy airline tickets online. The airline ticket group works with such global airlines as American Airlines, Japan Airlines and British Airways.

Ukash in June announced a deal with MasterCard Worldwide that enables consumers to reload prepaid MasterCards at Ukash locations under the card company's "rePower" scheme. Customers pay a reload fee for the service. The MasterCard deal seems a strong indication of what the future holds for Ukash, Moussa says. For his part, Mueller would not rule out a PaySafecard deal "with a prepaid service provider."

Prepaid voucher firms clearly have found a niche and seem likely to compete across the globe for customers, even as it remains unclear just how broadly their services can expand.  ATM

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