irst, a confession: I'm a closet television junkie. At home, we go weeks without even firing up the old portable Sony, but put me in a hotel room with a video surfboard (aka remote control) and it's downright Pavlovian.

Recently, while hotel-bound, I was struck by television ads that were being run by a company calling itself Debit Corporation of America. Contrary to what its name suggests, Debit Corporation of America doesn't operate in the debit card arena; through retailers, it sells prepaid credit cards that can be reloaded at Money-Gram outlets. Debit Corporation of America, in fact, is part of a veritable army of new players hawking prepaid credit and other types of stored-value card products.

Stored-value card products, it seems safe to say, have broken into the mainstream of the payment space. I'm not talking about phone cards; that's just the tip of the iceberg. Think store- and mall-branded gift cards. Think MasterCard- and Visa-branded cash cards that look and feel like credit and debit cards, sporting any kind of backdrop you could imagine on your checks. Think payroll cards. Think municipal parking-meter cards.

Down with Coin Meters, Up with SmartMeters

The city of Portland, Ore., is pulling out all of its coin-operated parking meters, replacing them with SmartMeters, each one of which can accept payments for up to eight surrounding parking spaces. Schlumberger, the international technology giant that has made significant strides supporting so-called smart card programs outside the U.S, designed the SmartMeters, and, of course, the chip-based stored-value cards Portlanders can use to pay for parking at the new meters.

SmartMeter Cards are reloadable, and transactions are processed through the automated clearinghouse (ACH) system. A host computer system isn't needed to support the card program because all of the "intelligence" is in the SmartMeter chip card.

This also makes it possible to support multiple programs on the card, if the city and the Portland business community are so inclined.

By the time Portland completes implementation of its SmartMeter program in 2006, there will be 1,200 prepaid card meters throughout the city. Sure, it sounds small, when you consider cities like Los Angeles and Miami would require thousands of SmartMeters. But innovative programs of this type generally start out small because small is manageable.

Cities across the nation are looking for ways to boost revenues in the face of wicked budget deficits. Portland has worked the numbers and determined it can enhance revenue collections and reduce administrative overhead. Other municipalities are sure to follow.

Observes Bob O'Neil, a business development manager at Schlumberger who has spent years in the retail payment space: "This represents a major change in what is possible in payments."

Huge Opportunities

Smart cards aren't the only devices piquing interest in stored value although applications like the Portland experiment will propel the trend and companies like Schlumberger no doubt are hopeful about such an outcome. Traditional mag stripe cards are making huge inroads into the prepaid card terrain.

These programs sport a cornucopia of brand names - from Visa and MasterCard (as in the case of Debit Corporation of America), to McDonald's, Starbucks, Western Union and a few others that may not have national recognition.

The opportunities are enormous. Financial Insights, a Framingham, Mass., research firm that tracks financial technologies, projects that stored-value cards will be a $290 billion business by 2006, generating in excess of $4 billion in revenues to service providers.

The single biggest share of that market will be generated through single-merchant gift cards. Payroll and benefits cards also will contribute handsomely to the total. (Today, most of these applications are based on mag stripe technologies.)

Stored-value cards that Financial Insights dubs "prepaid" cards (primarily phone cards, but also loyalty cards such as the Starbucks coffee card) will account for about one-quarter of monies spent using stored-value card products and about 16% of revenues by 2006, by Financial Insights' reckoning.

The opportunities - for ISOs, MLS folks, processors and banks - are enormous

Today, 58% of the top 250 retailers offer gift cards, according to various sources. Opportunities for growing that end of the merchant market may be limited by existing processing relationships, notes Tom Wimsett, President and CEO of Iron Triangle Payment Systems in Louisville, Ky. However, there are plenty of opportunities in the "mom-and-pop" merchant market. "This is a huge market opportunity," he says.

(Wimsett is keen on this market segment. You may recall he pushed NPC into the mom-and-pop end of the credit card acquiring market before leaving the helm of that company last year.)

Available data suggests that gift cards are most popular with the 25-34 age group and high-income individuals. A poll of consumers conducted by Financial Insights earlier this year found roughly 40% of people age 25-34 had used single-merchant gift cards during the previous three months; about 30% had used a multi-merchant card.

The next highest usage rates were reported for 35-44 year olds (35% single merchant, 24% multi-merchant). Analyzed by income, the survey results suggest gift cards are most popular among consumers reporting annual salaries of $75,000 and up (42% had used single-merchant cards, 20% multi-merchant cards in the last three months).

Usage drops with successively lower income groups, but with roughly 21% of the under $25,000 crowd using gift cards there's obviously a lot of room for growth in this market.

Payroll cards could stoke substantial growth. Bank of America supports payroll card programs for 600 employer clients already, issuing 100,000 Visa-branded cards that employees of those clients can use to access pay, according to published reports. Bank One, meanwhile, recently completed a pilot with McDonald's Corp. that could give payroll cards a big boost.

The Visa Payroll card (which forms the basis for the McDonald's/Bank One Direct PayChek card) works like direct deposit from the employer's perspective (funding accounts through the ACH) and acts like a debit card from the employee's vantage (sans checking account).

Laura Ermer, a CPA with McDonald's, says the fast food giant sees a lot of merit in payroll cards although there's no firm date for a chainwide rollout of the Direct PayChek card. Ermer discussed the pilot the company ran in three cities - Pittsburgh, Dallas and Denver - at the NACHA Payments 2003 Conference in late April.

In Denver, she said, 71% of employees are accepting direct deposit, and about half of those have signed up for the Direct PayChek card. "And the numbers continue to grow weekly," she said.

McDonald's, which may be one of the largest employers of "unbanked" Americans, pays employees at its owned and operated restaurants twice a month; the average paycheck is $500, according to Ermer.

She estimates the company issues about 200,000 checks a month to its restaurant workers. If only half those paychecks are converted to Direct PayChek cards, that would be as many Visa-branded payroll cards as BofA has issued to date through its 600 client relationships.

Depending upon whose numbers you crunch, there are between 10 million and 20 million "unbanked" consumers in America. In the past, the absence of checking or savings accounts made these folks too high a risk for plastic.

Not anymore - payroll cards change that marketplace dynamic. Many of these folks' paycheck-cashing houses charge 1-3% of the face value to convert their paychecks to currency, then they turn around and dole out a few dollars at a time in order to convert the cash into money orders for bill paying. With a funded, name-brand debit card, most of those costs go away for the consumer.

Other types of stored-value cards, such as gift cards, offer a similar benefit. I was a little dubious about the consumer-acceptance data Financial Insights reports, so I took an unscientific poll of friends and was surprised by how many told me they regularly use or give stored-value cards as gifts. One friend put it this way: "We've all become lazy about gift giving; gift cards are great!"

So are the revenue opportunities for those supporting gift card programs!

BofA charges between $5.95 and $11.95 (depending on value) for Visa-branded gift cards. MasterCard sells a branded card it calls a "convenience card," making it available at 3,600 Rite Aid stores nationwide. The card stores amounts up to $500 at a time. The card costs $9.95 initially; reloads cost $3.95.

Wimsett suggests the best opportunities for ISOs may be in gift cards. But there are emerging opportunities, too, such as flexible spending account cards, which could prove popular in the market for health care services.

"There are certain markets that are going to be more relevant to ISOs," says Wimsett, adding "Gift cards fit right in with the ISO's retail merchant strategy."

With a potential revenue stream topping $4 billion a year in another three years, stored-value cards are not a business to be ignored.