Maximising the Prepaid Potential by forrests




Maximising the Prepaid Potential
By Justin Bandy

With the prepaid cards sector set for explosive growth over the coming decade, this timely new report highlights and explains the most important issues you need to know about prepaid – in order to maximise the potential of this burgeoning market.

You will: • Understand the business case for prepaid cards, including sources of revenue and the main drivers of profitability in the market • Discover the secrets of successful cards issuers around the world with dozens of case studies and real life examples of prepaid programmes • Learn how to integrate best practice prepaid strategies with your overall cards programme, and develop more effective company-wide business objectives • Recognise the differences in business models between different types of prepaid cards • Implement successful strategies for prepaid marketing, branding and distribution • Discover which different product design and technology options are available to you • Identify future trends and developments in the industry, and understand their implications on your business

Maximising the Prepaid Potential
Maximising the Prepaid Potential provides practical strategic guidance for the most important aspects of your prepaid cards programme. Whether you are thinking about the design or implementation of a new programme or the reengineering of an existing strategy – you will find a wealth of detailed insight and techniques that can be applied to help you make the most of the massive business opportunity prepaid cards present.
Maximising the Prepaid Potential gives concrete examples of what works and what doesn’t work in prepaid. It illustrates the major strategic issues that all stakeholders in prepaid need to consider and offers practical recommendations on the design of your prepaid cards programme. You will understand key issues including: • The diversity of the prepaid cards sector and how different cards models have different associated costs and benefits • How to leverage the market potential for unbanked and underserved market segments • How different sectors have implemented profitable prepaid programmes and customised strategies for their target market • How fees, interchange and brokerage fit into the financial model Maximising the Prepaid Potential is also the only up-to-date strategyfocused prepaid cards report available on the market right now. Rather than only focusing on the size of markets or on customer behaviours, its content goes much deeper to help your business investigate whether prepaid is a viable business avenue for it or not. Case Studies The report uses actual examples from numerous prepaid cards programmes – both successful and unsuccessful – to illustrate how different business decisions in the design and implementation of a prepaid programme can affect the success of the product. For a full list of case studies featured, please see the table of contents on the opposite page. Audience The wide application of prepaid cards means that, in addition to the financial services industry, including banks, cards issuers and processors, the report is relevant to a diverse array of other industries – all with the potential to profit from the prepaid revolution. These include retailers, travellers cheques issuers and travel stores, post offices, payroll consultancies, transportation agencies, governments and more.

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About the Author
Justin Bandy is a researcher and writer for the retail banking community, primarily focusing on cards, payments and consumer finance. Justin has published articles in a number of VRL KnowledgeBank’s newsletters such as Retail Banker International and Bank Marketing International. He is also the author of Retail Financial Services in China: A Strategic Guide To Success, and Debit Cards: The Profitability Challenge, both reports published in 2006. Justin holds both a Bachelor of Arts and a Bachelor of Science degree with honors from Brown University.


Turn over for details of a new monthly bulletin from VRL KnowledgeBank – PREPAID CARDS INTERNATIONAL


Executive summary Chapter 1: Introduction and market surveys

• Market overviews and surveys • The global prepaid cards market • The US market • The European markets
Chapter 2: Types of prepaid cards

Reload fees Overdraft fees/credit extension fees ° Customer service fees - Other drivers of profitability ° °

• Prepaid card costs and potential liabilities

- Legal compliance and legal liabilities

• Virgin Mobile – Stash • Swiss Bankers – Travel Cash • Cash Passport – Travelex, Worldwide • UTI Bank and Remit2India • Octopus – Hong Kong • The European e-purse schemes

• Linking prepaid cards with business-wide strategic goals
- Customer acquisition - Cross-selling products to customers - Customer retention - Customer knowledge and segmentation - Deepending ties with merchants - Brand development - Grow deposits

• • • • •

Travel cards Gift cards Private label cards Payroll cards Remittance and money transfer cards • Government benefits cards

- An overview of European epurse programmes - Programmes suffered from misguided marketing strategies - E-purses were not designed to maximize the drivers of profitability for prepaid cards - What did work?

Chapter 7: Strategy recommendations and examples of best practice in the prepaid cards industry

- Mint, FirstPeoples Financial, Canada - Citibank Handlowy, Poland - The Bank of Moscow, Moscow - ASBA Bank, South Africa

• The prepaid customer value proposition

• • • • •

Insurance/emergency cards Transport cards General purpose cards Youth cards Other cards

- Prepaid cards attached to credit cards - Corporate prepaid cards - Other categories of prepaid cards

- Direct financial benefits - Essential for obtaining a product or service - Expanded range of spending opportunities - Safer and more controlled - Prestigious/trendy - More convenient

Chapter 4: Prepaid marketing and distribution

Chapter 3: The business case for prepaid cards

• Different cards, different business models • Replacement vs development • Value, volume and scale • Drivers of profitability for prepaid cards

• One card, multiple customers • Specialised vs mass market marketing • Loyalty programmes • Card personalisation • Affinity marketing • Distribution strategies
Chapter 5: Product design options and technology for prepaid cards

Float Breakage Interchange revenue Fee income ° Inactivity fees ° ATM fees ° Card issuing fees ° Card replacement fees ° Monthly statement fees ° Foreign exchange fees ° Monthly or annual fees ° POS usage fees ° Cancellation and cashing out fees

• • • •

Reloadable vs disposable cards Open loop vs closed loop Product functionality Magnetic stripe, EMV and contactless cards • Customer service • Graphic design and branding

• Understand the dynamics of the potential for prepaid use in your target market • Bank on more than the unbanked • Expect customers to be creative • Understand how regulatory changes could have an impact on the success of the programme, and proactively work to minimize regulatory risk • Use partnerships • Create incentives that promote desired customer behaviour • If possible, create an exclusive relationship between the product and a product or service that is appreciated by the target customer base • Integrate prepaid with the overall cards strategy and companywide business objective • Leverage the Internet for marketing and CRM • Consider flexible pricing • Understand scale and infrastructure requirements
Chapter 8: Future trends and developments in the prepaid cards industry

Chapter 6: Case studies

• The PostePay card – Banco Posta, Poste Italiane, Italy • Unicredit Banca – Italy
*Table of contents is preliminary and subject to change prior to publication



Subscription and package offers
Subscribe before 31 January 2007 and save £100 off the standard rate. Purchase the report, Maximising the Prepaid Potential, alongside your subscription to Prepaid Cards International and you will save £297 off the total package price! Please send me more information on Prepaid Cards International

Coming soon from VRL KnowledgeBank
With the first issue arriving in January 2007 – Prepaid Cards International is a brand new monthly bulletin and online resource – exclusively focusing on the global prepaid cards industry. Following the same successful format as VRL KnowledgeBank’s market leading publications, such as Cards International, Prepaid Cards International aims to be the prepaid industry’s definitive source of dedicated information, commentary and analysis for prepaid card issuers, regulators, processors and vendors.

From niche to mainstream
Few products have grabbed the imagination of the cards industry more than prepaid cards. From a very low base, the number of cards in force as well as transaction volumes and values are expected to increase exponentially for the foreseeable future. However, the worldʼs leading bank card issuers have been slow to move on prepaid – a sign perhaps of the difficulty of positioning prepaid within the bank and building a business case that justifies the investment in prepaid. Scalability and high transaction volumes are crucial to the success of prepaid. “There is a lot of optimism around prepaid as an opportunity for banks and non-banks to exploit,” said Chris Jones, senior consultant at PSE Consulting. “There is, however, a danger in attaching a prepaid model where itʼs not appropriate.” Segmentation is key, according to Paul Stanley, vice-president for payment strategy in the Europe, Middle East and Africa region at First Data International (FDI). He said: “Many large banks have been discussing stored value with us for some time. Thereʼs been quite a lot of clear thinking about segmentation and also how to maintain brand integrity with different types of products and customers.” According to Carol Heath, senior manager for prepaid products at Visa Europe, prepaid is a natural extension to issuersʼ core offerings of debit and credit cards. “Prepaid is a huge opportunity for banks to extend their customer base. It can operate as a pre-debit card programme for foreign nationals who can, for example, use it as a way to send money home and at the same time build up a transaction history. There are opportunities for prepaid to flourish in the government sector, especially as cash and cost reduction tools. Weʼre also saying letʼs push the boundaries into partnerships with retailers, for example co-branding, where itʼs not just about the shopping mall experience.” The potential market is huge. For example, analysis by consultancy Capco shows an expected growth in transaction volume and overall value of total prepaid business in Europe of approximately 100 percent yearon- year for the next three to five years.

Prepaid cards have the potential to reshape the cards industry. Growth in card numbers so far has been stellar, but many banks remain unsure as to how profitable prepaid really is and how to integrate this new business into their product offerings. Gerard Lysaght reports
“If we talk about volume rather than value, then I would expect a significant increase,” said Ken Howes, a director at consultancy Edgar, Dunn & Company. “There will be an increase in value, but it will be a blip compared to the value totals for other transaction types. It will be some time before we see a dent in cash. You could see a 200 to 400 percent growth in volumes over the next five years, but it would only take one decision in a huge market like China to change all those predictions.” MasterCard believes there are two primary prepaid categories: prepaid relationship products and prepaid replacement products. “Prepaid relationship products are similar to traditional debit products, offering new segments of consumers access to the banking system,” said Scott Galit, senior vice-president for global prepaid products at MasterCard Worldwide. “Prepaid replacement products are solutions that replace cash, cheques and vouchers, offering innovative ways to re-engineer inefficient processes.” As interest in prepaid grows, many of the first movers from several years ago are now moving onto the next version of their products. “Weʼre helping banks to refine some of the products,” said Chris Reddish, group head of prepaid cards at MasterCard Europe. “For example, the prepaid card programmes of organisations such as ABN AMRO of the Netherlands and the Swiss Bankers Travelers Cheque replacement product have been in the market for three years. The prepaid pioneers are now looking at second generation products.” He continued: “Thereʼs a lot more clarity from large banks on prepaid. Theyʼve got to see opportunities to generate scale for prepaid to have any potential for them. However, the large banks are now working on what they should be doing and how, rather than ʻifʼ. Assigning resources can be more complex in a large organisation. Thatʼs why you see a lot of companies partnering with large banks.” Jones at PSE said: “When we ask banks and processors why they are launching and supporting prepaid card programmes, they say itʼs because they see an opportunity, rather than responding as part of a defensive move. Banks recognise that smaller players are testing the market. Banks already have their banking and e-money licences as well as large customer bases, extensive branch networks and an online presence, so they are well positioned to move into the market at the right time.” Where prepaid fits in From banksʼ perspectives, one of the key issues is where prepaid sits within the organisation – both in terms of the organisational structure and the product offering. From a product perspective, prepaid does not easily sit with credit cards, nor does it, in theory, fit with debit, although most prepaid cards carry debit interchange. There is also a concern about prepaid potentially cannibalising debit and credit card spend. “A lot of research shows that prepaid is complementary to debit and credit,” said Reddish. Francesco Burelli, principal consultant at Capco, agreed: “Prepaid is not likely to steal customers from banksʼ debit or credit cards customers. It represents a significant opportunity to reach new segments of customers or current customers at the moment of transactions that were up to now out of reach of a direct banking relationship.” According to Jim Accordino, president of TSYS Prepaid, prepaid programmes operate independently of debit and credit cards, as they are neither tied to a demand deposit account or a separate line of credit. “Health care, voucher and incentive cards have not been successful in the debit or credit space, but they are in prepaid.” Prepaid cards can also be integrated with other product offerings. An example of this is the Yo! prepaid card product, issued by Portugalʼs Banco Espírito Santo, through which cardholders have the option to bundle a prepaid card with a current account offering. “For all intents and purposes, prepaid is a debit card with prepaid being a pot of money funded by a lot of different cards,” said Heath at Visa Europe. As far as organisational issues are concerned, Jones at PSE said banks need crosscompetency teams as internal and external partnerships are vital for prepaid. “A lot will depend on whether the bank is an issuer or an acquirer and what sort of customer propositions it is offering and

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