Friday, June 20, 2008
"I suggest that in most of the merchants I'm dealing with, that I have as clients, the prepaid program tends to be pretty much on autopilot," Sloane said. "They've got the program implemented. They've got a B2B component for that program as well. They understand how much they can grow the program year over year, and they set new, aggressive targets for that.
"But not a lot look at new ways to enhance it, and I think that's what we need to challenge."
In the webinar entitled "Open Loop Prepaid In Retail – Expanding Consumer Payment Options," Sloane outlined how gift cards are being underutilized at the POS and possible new ways they can be used.
According to Sloane, consumers are increasingly using gift cards as a budgeting tool. Gift cards are "a mechanism to keep expenditures in line with income," Sloane said, with consumers earmarking a certain limited dollar amount for targeted purchases.
For example, individuals may buy a coffee card from their favorite coffee shop every month. When the funds run out on that card, consumers may wait until the beginning of the next month to reload the card or buy a new one.
Citing the Adult Gift Card Study 2007 conducted by Comdata Corp., Sloane said 82 percent of consumers purchased gift cards for others, but 30 percent bought gift cards for themselves.
In consequence, "maybe there should be a mechanism to have a decoupled prepaid layaway program, something where an individual who aspires for a particular product can acquire a card that would help them build the dollar value necessary to be able to pick that product up," Sloane said.
For cardholders who buy gift cards for personal budgetary purposes, Sloane added that it's important to understand how they use gift cards in order to tailor programs designed to capitalize on that behavior.
If a consumer goes to a prepaid mall in a supermarket to buy a Starbucks card for a month's worth of coffee, but Starbucks is not represented in the mall and the consumer goes elsewhere to make that purchase, that's a failure to understand the mindset of the consumer who wants to use a gift card for budgeting expenses, and a missed opportunity to sell to that customer now and perhaps in the future.
But, according to Sloane, retailers are not gathering data on consumer prepaid card use the way they do for their debit and credit card programs.
"Now, I'm not suggesting that nobody is doing this," he said. "Clearly some merchants are. I'm just suggesting we need to expand those efforts and start to document how well a prepaid card, when targeted to the individuals especially that are using the prepaid card as a budgeting instrument, can drive more information and help us move that prepaid product up into a much more strategic asset within the merchant environment."
During the presentation, Sloane explained that retailers are now evaluating their services and the associated costs. Businesses are looking to reduce the costs of accepting electronic payments, namely interchange fees. A way to do this, Sloane said, is by tying a decoupled debit product to a merchant-funded discount network.
Traditionally, when a cardholder uses a debit card for a transaction, funds are lifted from that cardholder's demand deposit account (checking account) at the bank that issued the debit card. When the transaction occurs, the interchange fee the merchant pays for that transaction goes to the issuing bank.
But for decoupled debit that interchange is rerouted, away from the issuing bank, and to an intermediate service provider, such as Capital One Financial Corp., issuers of the MasterCard Worldwide decoupled debit card. Because decoupled debit card transactions are processed over lower-cost automated clearing house networks, the interchange costs for merchants are reduced.
Now, link decoupled debit to gift cards that feature more than one merchant, Sloane said, and a merchant-funded discount network may have a product that minimizes interchange and offers customers multiple merchant choices for where to spend their money.
As Sloane said, ultimately to create "your own branded, B2B restricted authorization network card that would have your brand on the front – two or three noncompetitive brands on the back – where as an incentive card, the recipient can bring that card either to your merchant location or to any on the back of the card, and the noncompetitive brands on the back of the card would participate in merchant-funded discounts."
Such a network would also be used to gather information about consumer shopping behavior. By amalgamating buyers' habits across multiple retailers, businesses can draw more accurate conclusions about what shoppers want and expect from their merchants, and retailers can tailor their products and services accordingly.
"Consumers are moving pretty aggressively to debit based products in transaction volume," Sloane said. "To not understand and figure and devise new products to meet this demand is simply ignoring what's driving consumers today."
The webinar was hosted by the Institute for International Research, organizers of Prepaid Card Expo '09, which will be held in Orlando, Fla., in March 2009.
Editor's Note: This article initially appeared in the SellingPrepaid E-Magazine, issue 08:06:B, published June 17, 2008.
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