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Global Potential for Prepaid Cards Overview of Key Markets © Edgar, Dunn & Company, 2013
Global Potential for Prepaid Cards
Overview of Key Markets
© Edgar, Dunn & Company, 2013
Introduction to Edgar, Dunn & Company
© Edgar, Dunn & Company, 2013
3
Edgar, Dunn & Company
Edgar, Dunn & Company (EDC) is a director-owned management consulting company established in 1978
Recognised industry leaders in payments
Financial services focus with payments specialisation
Collaborative consulting approach
Today we serve clients in more than 30 countries on six continents from offices located in North America, Europe and Asia
San Francisco
Sydney
London
Atlanta
Frankfurt
Singapore
Paris
Global Thought Leaders in Payments
Mexico City
Recipient Consumer
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Payment
Instrument
Issuer
Issuer
Processor
Acquirer
Processor Transaction
Acquirer
Debit
Credit / Charge
ACH / Wire
Money Transfer
Cash
Check
Prepaid
Pay Later
Pay Now
Pay Before
Acquirer Processors
Receiving depository financial institution
Originating depository financial institution
ACH
Agent Money Transfer Operator Agent
Banks, ATM Networks
Central banks, clearing houses
Collecting Bank Collecting bank
or processor Paying bank or
processor Paying bank
Prepaid issuers and processors
R e t a i l P a y m e n t s V a l u e C h a i n
Merchant Acquirers
Issuer Processors
Network Processors
Issuers
Prepaid acquirers and processors Network
Processors
EDC is familiar with and has client engagement experience across the whole payments value chain
Network
Re
tailers
EDC’s Advisory Services cover multiple functional areas and include conducting strategic analysis and providing critical business guidance to organisations throughout the payments value chain
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Strategy
Financial Analysis & Profitability
Customer segmentation analysis
Portfolio profitability analysis
Loyalty program development
Cost studies
Pricing studies
Risk Management
Proposition Development
Operations
PAYMENTS
VALUE
CHAIN
Corporate and business unit strategy development
Enterprise-wide and product-specific programs
Merger and acquisition support
Competitive positioning & brand strategy
Channel strategy
Risk management strategies, including chip
Credit and fraud risk policies
Fraud prevention & detection
Benchmarking & best practices
Back-office process improvement
Third-party processor evaluation
Review of business processes
Outsourcing strategies
Portfolio migration and implementation
Regulatory and network compliance
Market entry strategies
New product strategies
Market opportunity assessment
Implementation planning and support
Introduction
$822 billion projected prepaid opportunity 20171
The global prepaid industry is fragmented between financial institutions, retailers and speciality companies
Two main drivers have supported the global growth of prepaid: Functionality to support unbanked and
underbanked segments
1. Youth
2. GPR
Functionality to support distribution of value 1. Gift
2. Government benefit
3. Corporate Prepaid (travel, procurement, etc.)
6 1BCG
Image: www.theguardian.com
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Europe – UK, Italy, France, Germany
Middle East - UAE, Iran, Turkey
Latin America – Brazil, Mexico, Chile
North America – USA, Canada
Asia-Pacific – India, China, Australia
Africa – South Africa, Egypt, Kenya
Overview of Key Markets by Region
Europe
UK, Italy, France, Germany
© Edgar, Dunn & Company, 2013
Europe – Prepaid Landscape
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0
10,000
20,000
30,000
40,000
50,000
US $ GDP pr. Capita
Large differences in Europe will lead to different product
preferences
Regulatory environment has
become key factor
Avg. GDP per capita – $36.550
26% aged
over 65
Over 739 million
inhabitants
0%
10%
20%
30%
40%
50%
60%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
GDP per Capita ($) Unbanked population (%)
Source: World Bank
Prepaid Cards in Europe – Major Markets
10
One of the largest prepaid markets
15 million people do not have bank accounts (29%), largest absolute number in Europe1
Cost of basic banking is high and cultural factors see consumers with a high propensity to use cash
General purpose cards dominate the market
Main growth expected to be in payroll and corporate T & E
Dec 2011 law passed stipulating payments over €1,000 ($1,300) must be electronic, in attempt to reduce tax avoidance
Gift cards is the largest market worth an estimated £4.7billion2
In 2011 sales of gift cards and vouchers to corporations exceeded sales to consumers
Now more than 230 different prepaid cards available, up from 50 in 2007
Youth cards have become incorporated into general purpose (citizen card)
Prepaid cards generally need a niche to succeed in the UK Travel cards meet a need for UK travellers –
cards loaded with Euros don’t attract foreign currency transaction fees where debit and credit do
Italy
United Kingdom
1world bank
2UKGCVA
Prepaid in Europe – Major Markets
Market still dominated by paper and closed loop, but now shifting towards open loop
Strong foundation in consumer segment, with focus moving to GPR and contactless prepaid
Corporate and government prepaid represent significant opportunity for growth – lunch vouchers, rewards, incentives
Several corporate payroll and incentive cards launched since 2010
Late implementation of 2EMD (Jan 2013) slowed growth. Emoney issuers seek regulation in UK then passport to France
11
One of the largest European markets in terms of economics and payments
Highly developed infrastructure, but low card usage
Prepaid market is still in development in Germany (600,000 open loop, 11 million in Italy1)
Stringent regulations have affected market – German Money laundering Act Dec 2011 KYC for prepaid purchases over €100
Dominance of German savings banks has driven prevalence of checking accounts
These issues have made it an unattractive market for non-bank players
Germany
France
1cardsinternational
Prepaid Cards in Europe - Consumer
12
Youth Cards/GPR
European youth population – 55 million
Large potential market for retailers as there is an increase in spending power among youth.
Loyalty and brand recognition from early age
Convergence with mobile phones and loyalty
Gift Cards
62% and 72% of German and British consumers have bought a gift card1
Once customers have tried prepaid cards, they come back1
Reloadable opportunities
Transit
Transit cards expected to grow to $54 billion2
Prepaid transit cards can incorporate other functionalities3
T&E
Banks in well developed countries are active in issuing travel cards
UK and Germany are expected to account for 27% and 23% of the European travel market respectively by 20174
1Card World “German Consumers Warming to Prepaid”
2BCG
3Paybefore “Europe’s Changing Prepaid Landscape”
4VRL Financial news “The Prepaid Travel and Transit Opportunity
Prepaid Cards in Europe - Government
13
Post Offices
Poste Italiane
Poste Romania
Municipalities
Banks
National Healthcare
Social benefits receivers
Asylum Seekers
Prepaid not yet used for cash management
Typically prepaid cards are intended for specific purpose so closed or semi closed loop
Government to Government
Government payments are largely dominated by bank transactions – However, some prepaid initiatives appear to thrive
Programme Managers Card type Users
Typically issued in cooperation with
domestic banks or post offices
Both open and closed loop cards are issued by
governments
Prepaid Cards in Europe - Corporate
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Most common prepaid solution in corporate sector
Market size expected to reach $12 billion by 2017 1
Banks or programme managers administer payroll for businesses
Provide a tax efficient means to providing benefits to employees.
Offered by banks and programme managers
More widely used as prepaid petrol cards or meal vouchers
Corporate prepaid cards for T & E still not fully developed.
Remittance cards not commonly offered among banks
Prepaid remittance solutions face strong competition
Payroll
Rewards
T & E
Remittance
1BCG
Regulation of Prepaid - Europe
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Regulatory environment Impact on the prepaid market
Germany is one of largest markets in terms of economics and payments
Concerns about money laundering means customers have to be present at POS for KYC and due diligence checks
Payroll must be paid via a bank account making prepaid propositions superfluous
Italian legislation is helping propel toward prepaid, issuing a mandate that transactions over $1300 must be electronic
Well defined and open regulatory environment provides a potential competitive
Image: www.theguardian.com
Prepaid in Europe – Major Regulatory Changes Proposed
Standardisation of Payment Regulation across the EU and EEA
Amend and replace PSD I
Principal aims: Level the playing field for payment
providers
Increase consumer protection
Improving transaction security
Reduce ambiguity in PSD I
Achieve greater consistency across the EU in payment regulation
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Regulated caps on cross-border 4 party scheme interchange rates
Extension to domestic interchange rates after 2 years
Removal of certain scheme rules Accept all cards rule
Definition of merchant location
Increased transparency about levels of interchange fees and acquiring fees
Interchange Regulation
PSD II
Adoption proposed by Spring 2014 – appears highly ambitious, as there are European Parliament due Summer 2014
“The subject matter of the proposals is technically complex and not always fully understood by those drafting the legislation” – Hogan Lovells, August 2013
Prepaid Cards in Europe - Postepay
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Issued by Poste Italiane
Requires photo ID and social security
number
Can be used online and
abroad
Postepay Junior offered to youth
segment (under 18)
8.2 million cards issued to date
ATM withdrawals domestic and abroad
Purchases where VISA accepted
Pay bills, mobile refills
Check balance at post office
Can be personalised with photos
Supports dual card remittances
Prepaid cards in Europe - CitizenCard
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Acts as ID through the card’s PASS hologram (endorsed by the Home Office, Police and Trading Standards)
Cash loaded by bank transfer, at post office or PayPoint retailer
Can be used at VISA terminal online or the high street
P2P enabled
Open loop general purpose
for youth
Offers PASS proof of age
Can load between £10 and £5,000
Offers discounts at retailers and ‘refer and earn incentive’
Issued by Valitor
Middle East
UAE, Egypt and Turkey
© Edgar, Dunn & Company, 2013
Potential for Prepaid Cards in the Middle East
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UAE prepaid turnover expected to reach $18.4 billion by 2015
Drivers of Prepaid Market in Middle East
Unbanked
Young population
Government disbursement
Remittance opportunity
Population in the Middle East
67% of adult population unbanked
65% of population are less than 30
years old
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
GDP per Capita ($) Unbanked ($)
? ?
Source: World Bank
Prepaid Cards in the Middle East - Trends
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Payroll
Largest segment for prepaid cards in Middle East
Regulation means payroll now represents 50% of prepaid business1
By law workers in the UAE are to be paid electronically in companies with over 10 employees
Remittance
Estimated that outbound and inbound remittance worth $340 billion and growing at 6% CAGR2
Egypt has seen 6 fold increase in remittance inflow during the last 8 years
Most currently taking place through informal and unregulated1 channels
Government
Government disbursement will be important pillar in prepaid Market in Middle East
Youth/ General Purpose
Almost 1/3 population under 16, so represent a very large segment
Youth and general purpose segment GDV for KSA, UAE and Egypt combined estimated to be $3.5 billion by 20173
1cards international 2gulfnews 3BCG
Prepaid Cards in Middle East – Major Markets
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Percentage of Consumers interested in Prepaid Salary Cards
Turkey
Large relative proportion of: Unbanked residents Migrant work force Important remittance corridors
Growth driven by larger banks with a focus on consumer and transit
Corporate use of employee reward cards isincreasing
The Central Bank is working on a regulatory framework comparable to 2EMD
Prepaid industry is one of fastest growing markets in Middle East
Revenue Potential by 2015:
UAE: $18bn
KSA: $17bn
UAE
KSA
Egypt
50%
75%
70%
Provides large consumer and corporate prepaid opportunities
Prepaid Cards in Middle East – Obstacles to growth
23 23
Lack of regulatory frameworks in most markets Only Saudi Arabia has developed prepaid card regulations Regulation requiring electronic payroll settlement in UAE supports issuance of
prepaid cards
Distribution and Infrastructure Accessibility of prepaid services to customer Increasing number of POS and ATM
Education Issuers and consumers
Payroll cards for migrant workers often require extensive training of the workers
Usage of remittance services is slow to pick up
Revenue Models Competition and Profitability
Prepaid Cards in the Middle East - Corporate
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Money Transfer
Payroll
Benefits
Travel and expenses
Pay Remit
Dividend payments
Banks Payroll as a part of
Cash Management services
Programme Managers More products
Several markets
Dubai Financial Market Dividends distributed
to car
Employers
Migrant/unbanked workers
Customers and clients
No banks accounts required for product
Workers unable to open bank accounts
Products Users Providers
Prepaid cards in Middle East - Consumer
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Prepaid Remittance Cards
A significant proportion of money is being sent through unregulated channels
Harnessing this segment could further drive prepaid growth
Competition to provide viable, easy to use interface for both customers and receivers
General Purpose
Open loop prepaid cards are gaining ground
Developed payment industry and unbanked populations fuel this growth
Cards typically code protected and come with loyalty programmes
Youth Cards
Typically combined with general purpose cards
Countries with highly developed payment infrastructure seen success with youth cards
Aiming to educate young people about finance from a young age and encourage budgeting
Prepaid cards in Middle East - Consumer
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Gift Cards
Banks and programme managers offer open loop
Merchants offer closed loop
Travel Cards
Growing in popularity spurred by convenience and security of cards
Issued for visiting tourists coming to Middle East
Issued by programme managers for residents going abroad
Public Transportation
Turkey and UAE where public transportation is common, customers pay using prepaid contactless card
Regulation of Prepaid – Middle East
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Regulation by Middle Eastern Central banks are helping drive prepaid as a viable financial tool
in the region
Non negotiable
payroll instructions
Routed through Central Banks e.g. UAE
wages protection
scheme
Accounts for large number of unbanked workforce
Image: www.theguardian.com
Prepaid cards in the Middle East – Ratibi Card
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NBAD offers free life insurance to cardholders 5x that of their salary – first and only bank to offer this service to underbanked consumers
NBAD was also the first MENA bank to allow international remittance s through mobile phones through a partnership with MoneyGram in 2010
Issued by The National Bank of Abu Dhabi
(NBAD)
Offered to almost 500,000 unbanked
people in UAE
Allows employers to credit up to $1,360 a month to workers
Usable at millions of ATMs and merchants
worldwide
Prepaid cards in the Middle East - Examples
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Dubai iVESTOR card POS
Telephone Orders
Online
Cash withdrawal all over the world
Receive dividends direct from Dubai Financial Market
More than 30, 000 cards issued since 2010
iVESTOR Shabab Designed for people under 21
Given investor number to trade on Dubai Financial Market
Prepaid card with same features of main card
Except withdrawal limit is $1,300instead of $5,400
Youth version of card launched 2013
Latin America
Overview of Key Markets
© Edgar, Dunn & Company, 2013
Prepaid cards in Latin America – Prepaid Landscape
31
Cash accounts for 77% of
transactions
Prepaid market totalled
$20 billion
0
10
20
30
40
50
60
70
80
90
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
GDP per capita ($) Unbanked (%)
($) (%)
More than 300
million unbanked
Large population
with low card penetration
1BCB Source: World Bank
Prepaid cards in Latin America – Prepaid Trends
Mexico – Prepaid Cards
2007 2011
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7.82 million open loop
cards
12.7 million
4 million open loop
government 6.7 million
1.1 million closed loop
4.5 million
Major retailers issue their own
prepaid gift cards
55% of retailers in Mexico and 47% in
Chile issue gift cards1
Brazil’s gift card segment is not very developed
Some merchants offer less restriction on gift
increasing value
Market worth 150-175 $billion
by 20151
Low Value
High Volume Basic financial services cost %5-10 of minimum
monthly wage2 1Speers and associates
2World Bank
Prepaid cards in Latin America – Major Markets
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Key markets for growth
Brazil
Mexico
Key areas of growth
Corporate vouchers switching to prepaid
Gift card market not fully developed
Payroll cards to serve unbanked and aim to enable financial inclusion
Government disbursement
0%
10%
20%
30%
40%
50%
60%
2010 2015 2020
Development for Consumer payment instruments in Brazil2
cash Prepaid Credit/Debit cards Checks
0 20 40 60 80
100 120 140 160 180
2009 2017
US $ billion Total GDV for Prepaid Cards1
Peru Colombia Mexico Brazil
2Paybefore
1BCG
Columbia
Chile
Prepaid cards in Latin America - Government
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Brazilian government uses prepaid cards to pay welfare benefits
to consumers
Benefits distributed through Bolsa Familia*
social services programme to 12 million
households
70
90
110
130
2009 2017
US $ bn Total GDV for government programmes1
Brazil
Mexican government has recently moved towards distribution of social
benefits via prepaid cards
6.5 million
families
$99 billion
0
5
10
15
2009 2017
US $ bn Total GDV for government programmes1
Peru
Colombia
Mexico
1BCG
Prepaid cards in Latin America - Corporate
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In Brazil employers are obliged by the government to
give employees meal vouchers
Corporate paper vouchers are being replaced with Visa
prepaid cards
70,000 employers and 3.2 million
workers use Visa Vale
Recently, banks and branded networks are included in these solutions, creating widely
accepted closed loop solutions
Initially programme managers operate directly between employers and merchants and
restaurants
Programme managers are very active in this segment
Thus consumers learn to use banking products
Prepaid cards for rewards and incentives are gaining popularity
Banks and micro finance institutions starting to cooperate
Micro finance loans are distributed through prepaid cards
Prepaid in Latin America - Consumer
36
Well established awareness of using prepaid cards for transit and grocery applications but not for gift card use*
Some consumers believe debit and credit are more practical and safer than prepaid1
Consumers prefer gift cards that are:
Occasion specific
Event specific
Recipient specific
4.5 million closed loop
prepaid cards in Mexico – of which 8% are
non consumer cards
Prepaid cards for general
purpose gaining ground – pin protected
Prepaid in Latin America – Key Open Loop Programmes in Mexico
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The top five open-loop prepaid card issuers in 2010 were:
The Government of Mexico State with 2.60 million cards;
The Government of Nuevo León State with 1.33 million
Employee benefits card issuer Sodexo with 1.77 million
Fuel, meal and food card issuer Efectivale with 1.36 million, and
Social benefits card issuer SÍ Vale, Prestaciones Universal 2.02 million.
Regulation of Prepaid – Latin America
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Do not need to be Financial Institution to issue prepaid
cards
Large customer base
Lack skills and infrastructure to issue
prepaid cards
BUT
Image: www.theguardian.com
Prepaid cards in Latin America – Banco Pan Americano
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Brazils firts GPR card launched in 2011
General purpose reloadable open loop
No proof of income or credit check
In cooperation with Rêv Worldwide*
Brazils first GPR card launched in 2011
General purpose reloadable open loop
No proof of income or credit check
$3 cost of card with no monthly fee
Pin protected
Allows cash withdrawals and online purchases – focusing on convenience
for consumer success.
Aimed at 75 million unbanked in Brazil – to help include more
customers in financial services
Rêv Worldwide - Global payment solutions provider with focus on unbanked segment
Prepaid cards in Latin America – MiFon MasterCard Prepaid Card
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Allows users to withdraw funds from any of the 6,200 Banorte ATMs and send
money from one account to another using their mobile phone
Targeted at unbanked Mexicans, Mifon cards can be bought and reloaded at retail locations without the need to visit a Banorte Branch
Cardholders can carry out P2P transfers and make payments to merchants and utility companies from MiFon account via SMS
Partnership with Rêv Worldwide and Banorte – Mexico's 3rd largest bank
MasterCard Prepaid Debit Card linked to a mobile phone
account
© 2013 Edgar, Dunn & Company
Thank You
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Edgar, Dunn & Company Candlewick House 120 Cannon Street London EC4N 6AS
Tel +44 207 283 1114 Fax +44 207 283 1007
Peter Sidenius Director
