Article

Prepaid cards, mobile steal ATM show

Innovations in prepaid, deposits and mobile banking are the future.

October 10, 2007 by Tracy Kitten — Editor, AMC

Prepaid card programs that lean on self-service, emerging payments that connect mobile phones with the Internet and ATM, and the industry's lingering questions about debit's future have aligned themselves to go down as 2007's industry hot buttons.

 

Innovations in prepaid cards were abuzz, on the show floor as well as during the sessions at last week's ATM, Debit & Prepaid Forum in Carlsbad, Calif. Decoupled debit " a revolutionary debit program introduced this summer by MasterCard Worldwide and Capital One that is co-branded with merchants rather than being linked only to Capital One accounts " has left many in the industry, including Marilyn Kilcrease, president of California-based Creative Card Solutions LLC, biting their nails in anticipation.

 

It's a big move to ponder in the debit and prepaid card space, Kilcrease says.

 

Now that MasterCard has made the move, Visa USA will, too, Kilcrease said. And she wonders how the precedent set by MasterCard and Capital One will impact other entities, those not typical in the card-issuing space.

 

"Think about it," Kilcrease said at the Source Media forum last week. "Anyone can issue a card now. Think about the impact this will have on casinos: Now they can issue their own cards for customers to use at the ATM in the casino, where the fees are high."

 

The decoupling movement is one that is likely to open numerous doors for independent sales organizations and merchants alike. And in the prepaid space, decoupling is expected to have all types of unforeseen consequences, positive and negative.

 

For companies like California-basedPalm Desert National Bank, which is making headway in prepaid-card issuance through its work with ISOs and retailers, talk of decoupling is premature. At this point, the industry is still grappling with open-loop versus closed-loop, said Jim Tingey, executive vice president of the bank's PDNB Electronic Banking Solutions division.

 

"We have a wide variety of different vertical markets, like payroll, travel, general purpose, etc., that we work with," he said. "And each of them has different regulations, such as different regulations for travel cards versus payroll cards versus gift cards. So those like us, who are involved in all types of cards, have to be well-versed in all the regulations and understand the fees that have to be paid. It's a lot to understand."

 

In the card space, the prepaid market alone is exploding at an exponential rate. Tingey said PDNB's card program has tripled since its launch some 20 months ago. The bank now has 75 different applications, just in the stored-value space.

 

A changing demographic and the ATM industry's need to diversify product offerings have fueled the growth, Tingey said.

 

"I really think it's a demographic shift, with people who were more in tune with check-cashing now becoming more connected with prepaid," he said. "You see prepaid cards being used by the government, by universities, and you have a whole group of users who over the last 10 years have grown up with cards."

 

Leveraging its experience in the reverse vault cash space with its card knowledge has helped PDNB reach and work with ATM ISOs and kiosk deployers, said Gloria Grand, PDNB's director of marketing.

 

On the ATM, Debit & Prepaid forum's show floor, Better ATM Services echoed PDNB's sentiment for stored-value hype, albeit through a simple and narrow approach. The 3-year-old company recently launched asolutionthat enables card-dispensing at the ATM, without the need for a sidecar.

 

Tom Honey, the company's chief development officer, who incidentally is credited with inventing the Visa Check Card, says the solution's simplicity is its attraction.

 

"Basically, we are loading prepaid media where you load currency," he said. "Instead of loading the four (cash) cassettes with cash, you load three with prepaid cards and one with cash."

 

Honey says deployers can decide for themselves how many cassettes they choose to load with cash versus cards, as any combination can be made to work.

 

Better ATM Services demonstrated its solution onDiebold Inc.'s 1064ix, but Honey said the company is in discussions with other ATM manufacturers, includingTranax Technologies,Triton SystemsandNCR Corp. Tranax andColumbus Data Servicesrecentlylaunchedon an open-loop card-dispensing program calledZippay.

 

At the moment, Better ATM is piloting its solution in five restaurants in Arizona. The company plans to license its patented technology to ISOs and merchants, rather than placing the ATMs themselves and competing with ATM providers, Honey said.

 

The cards are printed on a thin sheet that comprises three connected panels, which together are about the size of a Danish Krone, making them dispensable from the cassette through the cash tray of any ATM, Honey said.

 

The two additional panels on the sheet can be used for advertising and promotion, which has proved successful in the dining space, Honey added.

 

"Studies show that a consumer will choose our prepaid card over another prepaid option if it is attached to a promotion or coupon," he said.

 

In the future, Better ATM Services expects to patent technology that will allow retailers or ATM deployers to track the number and location of all cards dispensed, helping them identify which promotions are most effective and why. The tracking will be done electronically, Honey said, with an embedded RFID chip that picks up data saved in the card's magnetic-stripe.

 

But Better ATM Services' solution only dispenses closed-loop cards, and some attendees questioned how effective a closed-loop solution could be in a retail environment that is growing more accustomed to open-loop options.

 

Honey says the company "went with a closed loop system to start because that is where the most need is at this time. The open loop system requires a slight modification in Visa's and MasterCard's operating standards. Specifically, it requires a modification of their existing operating rules to allow a 14 mil. card." 

 

Beyond cards, the 600 or so attendees, exhibitors and speakers who traipsed through Source Media's 15th annual ATM, Debit & Prepaid Forum also took an interest in advanced ATM functions and the ever-evolving world of mobile payments and banking.

 

Deposit automation and the mobile movement

 

Check 21is finally gaining some ground, and early adopters, like California-based Wells Fargo & Co., are taking their deposit-imaging abilities to the next level through bulk-note and check acceptance.

 

Wells, whose network of 6,850 ATMs now includes more than 1,000 imaging machines, has been working with Germany-basedWincor Nixdorf Internationalon bulk-deposit technology since 2002, when Wells rolled out its first envelope-free ATM.

 

"We wanted to be sure that the type of transaction we created met a customer demand," said Jonathan Velline, who oversees Wells' ATM network. "We piloted our first envelope-free ATM in 2002, and we weren't ready to roll out until 2006. We had a lot that we needed to tweak and fix for the customer."

 

Since 2006, Velline estimates the bank has made 50 or so more changes to the hardware and software that runs its bulk-deposit offering.

 

Albeit it a long process, the move to bulk-note has proved positive for Wells, Velline said. A number of steps, including the need for an envelope, a deposit slip, manual addition and subtraction, have been eliminated from the transaction, making deposits easier for customers. And the need to keep the process simple was the catalyst for Wells' move to bulk-deposit.

 

"We didn't want to make it inconvenient for the customer," Velline said. "We can accept up to 30 checks or notes in one transaction. We thought about the customer experience, and depositing one check at a time is not convenient, since 10 percent of our (deposit) volume is in transactions of 10 or more items."

 

Other benefits, such as having the deposited check and amount printed in real-time on a receipt, as well as being able to extend deposit cut-offs from 4 p.m. until 8 p.m., have been well received by Wells' customers. Velline said customers also appreciate the "green" benefits, such as the bank's ability to cut the number of times armored carriers have to visit ATMs and the removal of paper envelopes.

 

But the bulk-acceptance was the focal point, Velline said, and it's catching on. During the forum, Diebold announced the release of itsbulk-deposit technology. Wincor, which works with Wells, has been using its bulk-acceptance experience in Europe to leverage its U.S. growth. And NCR, which offers what it calls "intelligent" bulk deposit for cash but not check, touts having more than 2,200 intelligent-deposit ATMs deployed in the United States.  

 

On the bulk-deposit side, because it offers the tech for both check and cash, Wincor Nixdorf says it's starting to feel an impact in the United States. Company executives say Wincor Nixdorf now works with nine of the country's top-20 banks. Most of that traction was gained in the last year, whenBrad Waugh, Wincor Nixdorf USA's chief executive and president, took the U.S. helm. 

 

By shifting the company's U.S. operations from an indirect sales model to a direct sales model, Wincor Nixdorf experienced double-digit growth from 2006 to 2007, says Chad Wagner, Wincor Nixdorf's U.S. marketing director.

 

"We now have close to 140 field service people in 22 states," he said.

 

During the forum, Wincor Nixdorf demonstrated its third-generation check/cash deposit module (the CCDM) on its ProCash 2100, a lobby ATM. Wincor Nixdorf introduced the tech in 1995. To date, five U.S. banks are using the CCDM, Wagner said. Globally, some 50 banks are using it.

 

The CCDM allows users to deposit up to 50 notes or 50 checks at one time, just not mixed together. And checks and cash are accepted in the same slot, a market differentiator, says Chad Bruhn, Wincor Nixdorf's U.S. sales director.

 

"Other deployers have separate slots for cash and check, and all of our ATMs with deposit functionality have the depository on the same side of the ATM, in the same place, so it's easy for users," Bruhn said.

 

Deposit functionality, although just beginning to realize adoption in the market, has been talked about for a while. But one industry innovation that has quite suddenly hit the lips and ears of bankers and payments experts is mobile banking, and Richard Crone's Thursday session about the cross-over between ATMs, debit and mobile banking was one of the forum's best-attended.

 

Crone, the founder of Crone Consulting LLC, which advises banks, billers, merchants and processors, for nearly an hour energetically engaged his session's group with sound bites and video clips illustrating the rapid adoption of mobile offerings. How that mobile channel connects or can connect with the ATM channel, however, is a bit more difficult to explain.

 

"Think of the ATM as a cash-collection station that could facilitate mobile banking," Crone said. "You could get a mobile number that could be used at the ATM to facilitate the transaction. There are all kinds of possibilities."

 

Crone loosely connected the two channels by saying each has browsing capabilities, and that only outside the United States has that type of connection been exploited in an innovative way.

 

"You have the Internet screen, which also is on the ATM, the smart-phone screen, and the little screen, also known as the 'third screen' or mobile screen," he said. "Most (U.S.) businesses haven't done much with the third screen. Most banks haven't done anything. In fact, many online bank pages don't even support mobile screens."

 

The four channels of mobile banking " voice extensions, SMS/text, browser, and proprietary software that could be loaded on the phone to connect the bank and consumer " are not being used.

 

"You have to go outside the U.S. to see mobile innovation in payments and banking," Crone said, "even though 50 percent of U.S. consumers say they would use mobile banking if their bank offered it."

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