Financial institutions may be shifting their focus in the prepaid market.
Two years ago the prevailing interest was in single load gift cards. But a recent survey of Fifth Third Processing Solutions' FI customers shows a significant shift away from single load cards.
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Respondents to the survey, with a margin of more than two to one, say their preference is now on reloadable card programs. One reason for this strategic shift may be that FIs, in a challenged economy, are increasingly seeking new ways to attract and retain deposit balances. Single load gift card breakage has been declining over the past few years, as savvy consumers use multiple payment methods to avoid leaving residual balances on cards, and more merchants and issuers support partial authorization transactions.
Another reason may be that reloadable cards provide longer shelf life, more transactions per card and attract higher balances — giving them better growth opportunity. Also, a general-purpose reloadable card may serve many more consumer segments as a substitute for more costly paper transactions, such as teen, campus, incentive and payroll. And while some of these are niche offerings, these cards offer the promise of future loyalty as a relationship is forged between the financial institution and previously underserved consumers.
Lastly, consumer concerns about card fraud are driving increasing demand for some types of reloadable cards, especially travel cards, which ranked second in the customer survey for the first time. While the survey indicates FI priorities, the results also demonstrate a wide variety of opinions on the type of reloadable program FIs want to issue. Combined with the relatively late foray into the prepaid business by many FIs, this result suggests that the prepaid market will continue to evolve. With the prepaid market projected by some sources, including Mercator Advisory Group, to reach $421 billion by 2010, we can expect that additional opportunities in prepaid will be identified as financial institutions find their niche in this dynamic business.
Many FIs are beginning to segment their commercial client base to identify the universe of current and prospective customers seeking prepaid solutions to replace more costly paper alternatives. A good example is payroll, a growing market currently estimated at $43 billion by 2010. Payroll programs fulfill three goals for FIs: attracting customers that they don't have access to today, deepening relationships with current commercial clients and growth of deposit balances.
For an FI considering prepaid card issuance, we recommend keeping in mind that your prepaid card programs will only be successful if your customers, either commercial or consumer, are willing to place their dollars in them. And consumers will only buy products or services that have relevance to them.
With the right customer insights, and by understanding needs by customer segment, FIs can develop relevant and profitable prepaid programs to obtain new balances, drive customer loyalty and attract new clients. And with time, customer preferences will lead to the expansion of current — and development of new — card programs, along with the promise of associated deposit balances.
Melissa Goldsberry is the assistant vice president of Fifth Third Processing Solutions, a joint venture between Advent International and Fifth Third Bank, based in Cincinnati. To submit a comment, please e-mail the editor, Tracy Kitten.
