A new report from Javelin Strategy & Research finds that while the economic recession hit the U.S. prepaid card business hard in 2009, the positive economic outlook for 2010 is encouraging consumers to again invest in the prepaid space.
According to a news release from Javelin, U.S. consumer usage of prepaid and gift cards dropped from 66 percent in 2008 to 61 percent in 2009. But the decline in gift card sales and value began to turn around by the end of 2009 and is expected regain momentum in 2010. The report is based on Javelin's latest annual payments survey of 3,294 consumers, vendor interviews and Javelin expert analysis.
The "2010 Prepaid and Gift Card Market" report finds that companies that focus on the right features, messages and market trends can compel more consumers to buy more stored-value and gift cards.
"As an example, while overall use dropped in 2009, in the online channel, pay-now options and pay-before products such as prepaid and gift cards are flourishing," said Mary Monahan, Javelin's managing partner and research director. "Government regulations that restrict gift-card fees and expiration dates favor consumers and are vital to building the trust that can build adoption and use. Lower costs and enhanced functionality are luring consumers back and boosting the volume and dollar value of cards they purchase."
Regulatory issues and industry maturation also are driving greater product innovation, consistency and consolidation of players in the market, Javelin says. The market need for one-stop shop, end-to-end providers may result in increased vertical integration versus the multiple niche players in the market today.
The Javelin report discusses key trends and users of prepaid cards and the market forces influencing change in the prepaid space. Javelin forecasts that prepaid usage will more than double by 2014, while gift cards will more than triple — with the latter expected to attain $6 billion five years into the future.
The report examines how the major card networks — American Express, Discover Network, MasterCard International and Visa Inc. — are driving prepaid and gift card business. The study also explores how merchants — in particular, Western Union, Walmart and H&R Block Bank — are positioning themselves to build demand for prepaid cards.
More than one in every five American households is unbanked or underbanked, meaning they lack a traditional checking and/or savings account. One in five underbanked consumers has used a prepaid card in the last 90 days, making prepaid a way to access unbanked and underbanked consumers, Javelin found.
The demographic of consumers receptive to prepaid and gift cards is evolving, as merchants and service providers offer innovative products such as payroll and travel, new access methods such as Internet and mobile devices, and options such as micropayments and teen spending controls.
Industry consolidation of the fragmented prepaid and gift card market is likely to accelerate throughout 2010, and an increase in vertical integration may also occur, with consumers and businesses preferring one-stop shop, end-to-end providers to the many niche players participating in the market today.
"Savvy providers who want to stay in the game should jump on this opening in the market," said Beth Robertson, director of payments research at Javelin. "They can promote recurring use of prepaid cards through features, messages and programs, while building trust with unbanked and underbanked consumers."
