Bringing prepaid power to ISOs and MLSs
Through scaled pricing and innovation, projectprepaid, a subsidiary of Merchant Rewards Network, developed programs that are finally allowing ISOs and merchant level salespeople (MLSs) to crack the arena of prepaid in a manageable and profitable way, according to projectprepaid Executive Vice President David Allen.
Allen said the merchant acquiring side of financial services is less complex and enjoyable than the issuing side. But the barrier to prepaid is "very high" because in addition to being regulated by the federal government, every link in the prepaid value chain must be approved by the sponsoring bank and by the card brand that is on a particular card, he noted.
"What we've done is created a program where we oversee that, and ISOs are incentivized to get into prepaid," Allen said. "We're an IT-centric organization and have over 18 individuals working in our IT department to create custom, creative programs for our clients."
Allen believes projectprepaid is the only entity in the industry registered with a bank and associations that provides prepaid programs to the acquiring sector and supports an ISO program. That means that using its high-end technology platform, projectprepaid can generate completely customized programs for merchants and for its third-party sellers.
Customization for specific needs
The company's programs cater to the specific needs of diverse merchants, as well as streamline integration, provide risk protection (merchants bear the liability, but projectprepaid employs sophisticated controls to limit fraud), limit costs through a broader economy of scale and generate multiple revenue streams, Allen stated. "We do all the risk mitigation and PCI compliance," he said.
According to Allen, the parameters of a customized prepaid program are essentially limited only by the imagination of the client creating the program. He added that projectprepaid provides a variety of prepaid card programs, from general purpose reloadable cards, to virtual card programs, to payroll card programs, to time and attendance cards.
As one example of customization, Allen cited a program the company put together for a business that provides rehab services to recovering drug addicts. He said projectprepaid restricted the cards so they couldn't be used at ATMs and at liquor stores; the company also provided graded feedback to the program about each client's spending.
"We created a report card at the end of each month, issued through our back-end system," Allen said. "Clients were expected to spend about $20 a day, and this program would grade you and give a detailed report card of how you've done."
Among projectprepaid's other services are companion cards. This involves linking two cards and enabling one cardholder to exert control of the other's spending. For example, parents can control how much money their child spends by linking the child's card to the parents' bank account. The company also works with a number of electronic wallet providers and is crafting a prepaid card program for use with near field communication, according to Allen.
Help on the back-end
Projectprepaid provides an online portal on the back-end where clients can access wide-ranging and specific statistics on their customers' use of prepaid cards; clients use this data for marketing and other endeavors.
"We have two portals we provide to clients," Allen said. "We have their website, which is the cardholder website. Then we have the projectprepaid reporting website, where there's every type of report under the sun: for their income, for usage of the card, for where and when the card is being used.
They can use that data for marketing, for program growth and for whatever they deem necessary, but the biggest variable is that reporting isn't available out there in our industry. We had to build our own tool using all the data."
ISOs and merchants who purchase prepaid card programs through projectprepaid can do so at much lower rates than they'd normally pay because of the economy of scale yielded by the company's large customer base, Allen added.
"A client might say, 'Why shouldn't we be the program manager?'" Allen said. "Well, there are incredibly high minimums [to purchasing prepaid cards]. But we're able to amortize our minimums across a huge customer base, and so it costs far less. So having your own card program becomes realistic."
Rewards for merchants
Perhaps projectprepaid's most innovative program in the business arena is its MerchantCard. The MerchantCard is a card for the merchants themselves, on which they can deposit their daily credit card receivables and which they can use for business expenditures, Allen said.
Allen believes the MerchantCard has a number of benefits for both the ISO and merchant. For the merchant, it creates a depository space that is not subject to the same controls as a bank account and can expedite the availability of funds.
"It literally becomes a virtual bank account where they can deposit funds," Allen said. "And prepaid has been carved out by Congress as having no liens, no judgments - and it's quicker, often times."
He added that to prevent large-scale fraud, the card brands generally limit the amount loaded on a single prepaid card to between $5,000 and $10,000, but for the MerchantCard program, projectprepaid received special approval from its partner bank and MasterCard Worldwide for a maximum depository amount of $150,000.
"Merchants have the ability to get quicker funding from their processor [than with using a traditional bank account]," Allen said.
The MerchantCard program is free for cardholders, and revenue - for the ISO and for projectprepaid itself - is all generated through interchange, Allen said. "All ISOs are looking for additional ways to generate more revenue from their merchant base," he noted.
"Well, this becomes a very benign way to increase their revenue. It's one of the only ones that costs the merchant nothing. All the revenue being generated is through interchange."
A money-saving program
Allen said the program can save merchants money because they get cash back on their spending. Meanwhile, the ISO gets basis point revenue every time the card is used. With that, ISOs are not only making money from purchases made from a particular merchant, but also those being made by the merchant - effectively giving the ISO an entirely new profit stream, Allen added.
"When the merchant makes purchases with the card, they get cash back, in basis points, which effectively reduces their credit card processing rates. ... It also generates additional revenue for the ISOs," Allen said.
"One problem for merchants is there's no such thing today as a corporate credit card - ours is a corporate card. Business owners are no longer provided corporate cards without a personal guarantee. This gives them a true corporate card that's not personally guaranteed by them."
Allen added that as an additional incentive to use the MerchantCard, merchants can save money on pharmaceuticals and other purchases through projectprepaid's corporate partnerships. "All cardholders have access to a discount network with over 300,000 businesses nationwide and over 10 million monthly users," he said.
Among projectprepaid's other services for prepaid card users are Mobile Check Deposit and PhotoPay, which are smart-phone apps that allow users to, respectively, instantly deposit checks or pay bills by snapping a picture of checks or billing statements and sending payments through projectprepaid's smart-phone app using their prepaid card accounts.
"You click the picture, confirm the amount you want paid, and it's virtually instant," Allen said. "It's the most unique bill-pay feature on the market today. Every prepaid card we issue has a routing number and [demand deposit account] number, so if you want to transfer funds it's just like a bank account.
You don't have to say, 'I don't have a bank account'; from their end, there's no difference."
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