An Educational Introduction
Pre Paid Debit Cards – Stored Value Cards
In the past thirty years commerce in the western world has undergone tremendous
change, increasing the number of commercial transactions through an increasing
number of different methods of accessing one’s assets or credit facilities. Changes
began with the accessibility of Credit Cards, followed a decade later by ATM cards, and
joined most recently by “Check Cards” that combine the functions of ATM and paper
checks with the convenience of credit card network processing methods. What has not
changed over the past 30 years is the fact that depositing monies to any of these types
of convenience products requires a bank transaction. Credit Cards require a bank
account in order to issue a card; ATM debit and “Check Cards” require a deposit
Account and physically require either a bank transaction or a deposit at a branch or
The Stored Value Industry got its start back in the 1980’s with the advent of the first
“Fuel” cards issued to long haul truckers. These cards were similar to today’s wide array
of commercially available “Gift Cards” sold in virtually every retail venue across the
United States. They had a pre-loaded “dollar value” assigned to each card that would
allow the drivers to use the denominations to purchase gas and other related goods and
However, these were what are called “closed-loop” cards meaning that they were only
usable at pre-programmed designated stations where the processing that allowed these
cards to work had been integrated into the POS (point of sale) systems at each of the
truck stops. In that sense, they were really no different than a typical “gift card” a
consumer might buy at almost any corresponding retail store such as Home Depot,
Starbucks, Barnes and Noble, Best Buy and thousands of other stores.
The protocols to all of these cards are that they can only be redeemed at the store from
which they’ve been issued meaning a Home Depot Card cannot be used at a Barnes
and Noble and vice-versa.
Fast forward a few years and the next stage in the Stored Value chronology shows up in
the guise of Pre-Paid Telephone Calling Cards. Again, the first use of these cards
started with the aforementioned Trucking Industry that issued these cards to make it
easier and less expensive to have the drivers check in with dispatch and also to keep in
touch with their families. Like the fuel cards before them, each card issued has a set
dollar denomination attached.
By the late 1990’s the industry expanded to then issue “closed-loop” store specific Gift
Cards in large quantities. The Gift Card Industry had gross sales of a few million dollars
back in the late 1990’s. By 2007, the industry has expanded to sales growing by 20%
per year and is now at over 20 billion dollars a year with no end in sight.
Around 1996 or so, a new type of “Stored Value” card emerged in the marketplace that
was primarily aimed at the large (and heretofore untapped) immigrant and Un-Banked
(or Under – Banked) market in the United States. Since that time-frame, governmental
estimates put the number of individuals who fit this profile at approximately 25% of the
US population which is now at 300,000,000. (Or approximately: 75 million people)
This demographic consisted mostly of the poorer ethnic groups within the US: namely
Hispanic and African – American but includes virtually every ethnic group from virtually
every foreign country. It also includes the youth market (mainly teenagers) that makes
up their own sub-group within the industry.
Using one of the largest ethnic groups within this demographic as an example: the
Mexican community which has comprised (possibly) the largest users of pre-paid phone
cards, it was noted that at the time the next generation of stored value cards hit the
market (circa 1997 or so), this large group was sending approximately 30 billion dollars a
year from the US to Mexico. (It is Mexico’s second largest industry behind petroleum).
They accomplished this primarily via traditional money remittance agencies such as
Western Union and Money Gram (and a few private entities targeting these groups).
In 1999, for Mexicans to send money back to Mexico the average amount
(approximately: $265.00) via Western Union was $50.00 (this varied from state to state
and even within the state. Costs also varied as to the amount on a sliding scale. As the
dollar amount increased the cost declined as a percentage of the transaction.
This new Stored Value Card system working in conjunction via an underlying US Bank
and a corresponding payment processor (First Data, Concorde, Fi-Serve et al.) allowed
the consumer to purchase two cards: the primary card and a secondary card. The first
card acted as the control card that was loaded with a set amount of cash. The consumer
would then send the second card home to Mexico. Once it safely arrived, the US person
would go to a touch tone telephone, dial an access number and, via IVR (interactive
voice response) transfer a set amount of money (possibly $100.00 out of the original
$250.00 deposited). The typical charge for this was approximately $5.00 per transfer, up
to 90% lower than the traditional venues like Western Union. Even factoring the
purchase price of the two cards (range from $10.00 to $30.00), the cost of sending the
second card home, the charge to do the card - to - card transfer, and the charge to
retrieve the money in Mexico including the exchange rates, this new system was faster
and much less expensive than the traditional methods these groups had used for
There were other advantages to this new system which included being able to purchase
goods and services via POS (point of sale) just like the typical “banked” consumer did
with their credit or check debit card. This was safer and more convenient than carrying
cash, and if the Un-Banked (or Under-Banked) person had any kind of W2 job, their pay
check could now be direct deposited onto this new Stored Value/Debit Card just like
middle class workers who enjoyed direct deposit into their personal bank accounts
(nullifying the necessity for the Un-Banked person to stand at long check casher lines
and pay high fees (3% on average for the transaction only to then be vulnerable to losing
the money and/ or be exposed to theft, etc).
The new industry was gaining momentum when the tragedy of Sept. 11, 2001, occurred.
Post 9/11, the US (as well as foreign) governments instituted far stricter controls
concerning the transfer of money and payment processing overall. New legislation,
dubbed “The Patriot Act” (among others) temporarily halted this emerging technology to
the point where the impact is still being felt today (and will be for years to come).
New rules and regulations stymied many of the methods born out of the Stored Value
Industry that allowed the casual shipment of debit cards and money internationally.
This one function accounted for most of the sales of these new cards since their
inception, and the industry now had to account for the diminution of this major part of
their business model.
However, within a year or so, many new ISO’s (Independent Sales Organizations) were
cropping up across the country (and many more overseas) to try and capture their share
of this incredibly lucrative marketplace. Today, there are perhaps a hundred or more
firms that have entered this arena, with none necessarily enjoying any particular
advantage over the other. There are a few well known firms within this space: Green Dot,
NetSpend, PriviCash, g-Card, My Money Plus and others that today have an aggregate
of approximately 4 million active cards in the marketplace.
The three major issues that none of these entities have managed to completely
Loading the cards
Dealing with compliance
-(issues of ID and knowing your customer- know-thy-customer (KTC)
Education about the product
-(issues and programs for successfully delivering marketing and promotion)
All of the aforementioned firms have been start-up entrepreneurial companies who all
saw the tremendous potential in this heretofore untapped Un-Banked and immigrant
market. One of the salient factors in their slow growth has been the difficulty in
addressing the above issues. Green Dot grew out of the original company, Next Estate
(who after years in the industry were not selling the number of cards necessary to show
a favorable ROI) and became the industry’s first nationwide “Loading” network. Even
with this, none of these firms has found the “formula” to break into these demographic
markets in a similar fashion to what Madison Ave has done for traditional companies
wishing to reach these very same demographics.
The overriding obstacle is to convince people who have lived in a “Cash-only” society for
decades to suddenly make the switch to a “piece of plastic” whose institutions they
neither understand nor trust.
Over the last year or so, technology again is leading the way with new products and
innovations within this industry. We are starting to see the use of Cellular Phones that
via various methods and protocols, are taking the place of (and are augmenting) the
heretofore typical industry Stored Value/Pre Paid Debit Card.
New technologies and software are now allowing anyone with the proper hardware
(which facilitate the purchase of new cell phones) to leave their plastic cards at home
and use their Cell Phone to make purchases and transfer money to anyone else who
owns a cell phone.
Both NFC (Near Field Communications) and RFID (Radio Frequency Identification) are
now being integrated into the next-generation handsets and associated point of sale
(POS) terminals that allow a user to merely wave or point (or in some cases, dial a code
from their phone) to make purchases at enabled retail venues and restaurants, etc.
This technology has been in use overseas, in places like Japan and Hong Kong and S.
Korea and even parts of Europe for a few years and is quickly gaining acceptance in
many of these markets, largely fueled by the “youth” culture who doesn’t go anywhere
without their mobile phones.
Many large Banks and Telco’s (mainly Cellular carriers) are now looking at this new
technology as a way to stay ahead of the buying curve and find new revenue streams.
Companies like C-Sam and Obopay and Mobile-Lime and Paybox are each making
strides into traditional communication’s markets as well as with Payment Transactions
companies such as Visa and MasterCard.
Interestingly enough, this next wave of technology might be the adrenaline that the
Stored Value Industry needs!! In the 10 years or so since this generation of Stored
Value Cards have been targeting the Un-Banked and immigrant markets within the US,
there are only about 4 million active cards out of some 75 million potential users. Some
of the aforementioned facts and details allude to this slow growth.
Although no hard and fast figures are available within this demographic, industry
statistics put the number of cell phone users (even amongst the Un-Banked and
immigrant populations) at approximately 60%! It may indeed be higher since many of
these users either prefer and/ or are forced to use Pre-Paid Cellular which in most cases
does not require any kind of ID and/ or credit card or bank account etc.
The leap to integrating much of the functionality of existing Stored Value and Debit Card
technology into a cell phone (even if that means the user must still have a companion
stored value card of some kind) seems a natural extension since while this demographic
may be Un-Banked and un-employed and/or un-educated (and/or even here illegally!),
they all at least want a cell phone and all know how to use one and are not afraid of
technology innovations that apply: i.e.; like built-in cameras and or SMS Text messaging
and/or NFC or RFID technology that makes it quick and easy to purchase goods.
One such company TMS Corporation out of Phoenix, has designed and developed a
hybrid Stored Value/Mobile Wallet system called SMS Comet that allows a user to send
money from their cell phone to any other cell phone via SMS text messaging. (At present
11 Countries are in the working model, more to follow) They have developed a
companion card that acts like a closed-loop gift card on steroids. It runs on its own
proprietary network and like the aforementioned Green Dot company, is its own loading
network, but with one HUGE advantage: It is not limited to service within the United
States. The company already has qualified merchants on its network in several
The system enjoys the very lowest costs and fees associated with any Stored Value
Card product here or abroad. It is fully compliant and is not restricted by Association
(Visa/MC) guidelines. It has multiple functionalities and has been integrated with 2 US-
based MasterCard/Star/Discover Card certified processors that allow it to be further
integrated with other Stored Value Companies’ offerings (including its sister card:
Everest Pre Paid Debit Card).
The Stored Value Industry (i.e.; the Pre Paid Debit segment of it) to date is starting to
break out of the doldrums placed upon it after 9/11. Again, no exact Industry figures exist
(as one might find easily with typical Credit Card analysis) but gross dollars stand at
approximately 10 billion dollars a year with the US-based issuing entities only dealing
with approximately 5 -10% of the US market. The future and the playing fields are wide
open for exploration and conquest as much of this new technology portends.
The market writ large is truly global, and with less than 10% of the world’s population
having traditional access to Banking and Credit, the potential is staggering in scope. The
Telecom industry’s future is entirely Internet-based and Wireless-based, and companion
technologies, much of it running on parallel paths with payment technologies as
illustrated will open up entirely new markets, both here and abroad and will take many
years to even scratch the surface of the enormous profit potential.
Here in the US, the 2006 figures state that total credit card processing hit about 1.7
billion dollars. (It should be noted that the US credit card market is nearly at the
saturation levels!) However, 2006 was also the year that Debit Card use outstripped
credit card use by a hundred million dollars or more. This market, as illustrated here, is
only in its first stages with 90% of the Un-Banked market not even included in its sales
and profit figures. Its future growth will run parallel with the Country’s population growth
both in the traditional markets and the ever growing immigrant market that will
continually be UN-Banked and/or Under-Banked. In essence, the market will virtually
never be saturated and with US-based companies like PinPay which is opening up these
markets on a global scale, the potential for growth and enormous ROI is without
precedent by comparison to any level of Payment Processing.