The concept behind prepaid cards is a simple one and has a number of advantages for consumers. It takes the form of a payment card (supported by, for instance, MasterCard) that is pre-loaded with money, which the recipient can spend wherever MasterCard is accepted, including the internet and abroad.
Prepaid cards cover a variety of sectors and there are cards covering many requirements and occasions, from sending money to family and friends and managing travel funds to shopping online or in store. The scope of prepaid cards enables retailers to tap into a wide consumer base.
Consumers load funds onto a card and then use that money to make purchases or withdraw cash. These cards behave the same as credit cards but without the credit. There are no interest charges, late payments or over limit fees. This makes them attractive for the consumer as they can only spend the money they have loaded onto it, meaning there are no concerns about going into debt.
Some prepaid cards are managed via chip and pin, and need to be registered and activated before use. This provides additional security as they can only be used by the recipient.
There are three categories of prepaid cards - closed loop, open loop and restricted loop. Closed loop cards are redeemable at one specific retailer, for example Debenhams or Asda. Open-loop cards use either the MasterCard or Visa payment networks, and are accepted at millions of outlets worldwide, whereas restricted-use cards can be used at a selected group of retailers, which are affiliated with the card.
Tapping into consumer spending habits
The technology behind prepaid cards provides valuable data for retailers, and prepaid card providers can track how much people are spending, what they are spending on, how long it takes them from receiving the card to spending it to name just a few. From this information, retailers can then find out more about their consumer’s behaviour and develop targeted activity around this.
Gift cards are a form of prepaid card and one that is proving very popular. The UK’s gift card and voucher market is currently in good health, having experienced its highest ever year-on-year increase in sales according to the UK Gift Card & Voucher Association (UKGCVA). Overall, the market has seen a growth of 15.6 percent in gift card and voucher sales in Q1 of 2011 compared with the same period in 2010.
For retailers, prepaid gift cards are an ideal way to promote their business. They reinforce the brand, generate loyalty and offer a reduced risk of fraud compared to paper vouchers as many of them need to be activated by the recipient before use. The fact that prepaid gift cards have no value until they’re used at the till has other benefits. It means they can be merchandised on the sales floor as a serious gift alongside other products, thereby achieving greater visibility.
Research shows that prepaid gift cards are more attractive to the purchaser compared to paper vouchers, and are perceived to have a ‘higher worth’. The design and packaging of the card can vary to fit with the brand, recipient and season. The design on the card is also an opportunity to extend the brand as each time the consumer uses the card, they will be reminded of the company in question. What’s more, there are proven business cases that purchases with a gift card drive a higher spend than those without as the recipient often spends beyond the value of their gift card.
As well as increase spend, prepaid cards can be used to boost loyalty towards a brand or retailer. The Debenhams Beauty Club card is a prime example of how a retailer is using a gift card as a form of loyalty. The close-loop card enables customers to collect points on beauty purchases in store or online, building up to rewards that can be spent in store.
The department store has launched a loyalty based iPhone App, which features a unique Virtual Loyalty Card. This is a first of its kind for a UK high street retailer. Customers can use the App as a virtual card to collect and redeem points as well as check their balance and transactional history.
Mobile vouchers
This innovation is part of a wider shift in the prepaid sector towards digital. In particular, there is a current trend towards mobile vouchers which allow retailers to reach out directly to the customer via their mobile. A person’s mobile is connected to their world, both personally and professionally, and the use of mobile vouchers allows retailers to target customers on the move, wherever they are.
Retailers can provide added value to the customer by offering extras alongside the vouchers such as discounts, special offers and details of related events to encourage further spend. Redemption rates can be increased by personalising vouchers for the individual user, making them more relevant and engaging.
Mobile voucher payments are growing in response to the increased use of smartphones. In the UK alone it is estimated that 11 million people currently own this type of phone, a figure that is set to increase as mobiles continue to develop and evolve.
There are many ways in which retailers can work with the prepaid sector to reach consumers and drive sales. Prepaid cards if implemented and managed effectively can have a positive impact on the bottom line.
