C S P June 2012 115
L ike the proverbial roads lead-
ing to Rome, in the migration
of everything prepaid—from
gaming to gift and general-purpose
reloadable (GPR) cards—all subcat-
egories seem to be converging into the
cellphone of tomorrow.
That’s because the growing ubiquity
of high-tech smartphones and the move-
ment of payment to “mobile wallets” are
acting as magnets, pulling prepaid in.
“I think it is only a matter of time
before prepaid mobile-phone payments
are as common as using a plastic card for
the same type of transaction,” says Scott
Hartman, president and CEO of Rutter’s
Farm Stores, York, Pa., giving a nod to
both mobile wallets and the growing use
of prepaid in general.
Several documented prepaid trends
back this scenario:
▶ “Open loop” market to surpass
closed loop. The use of prepaid cards in
lieu of personal credit and debit cards
and even bank accounts (with employees
getting their paychecks downloaded onto
cards) will exceed volumes for closed
loop—or cards tied to specific entities
or retailers—by 2014, according to Mer-
cator Advisory Group, Maynard, Mass.
The trend indicates the growing use of
prepaid as a payment option.
▶ Prepaid long-distance falls as
wireless rises. A 7% drop in prepaid long
distance (land lines) from 2009 to 2010
(most recent data available) is projected
to continue, falling from $3.7 billion in
2010 to $2.8 billion annually as a subcate-
gory by 2014. Meanwhile, prepaid mobile
Prepaid, Cellphone ConvergeMobile payment, GPRs, unredeemed gift-card dollars prompt change
By Angel Abcede || [email protected]
C S P June 2012116
minutes and plans went in the opposite
direction, rising 16% from 2009 to 2010,
with projections going from $23.8 billion
in 2010 to $32.9 billion by 2014, Mercator
says. The trend is the ripple effect of the
rising use of mobile phones.
▶ Retailers believe mobile payment
is inevitable. In a joint survey by CSP
and Mercator, almost a quarter (23%) of
responding retailers said they were con-
sidering technology changes to accom-
modate mobile payments. (See sidebar
above.) Retailer buy-in is a must for any
new payment trend, especially when
change requires a financial investment.
Still, mobile payment faces many
obstacles, including data-security
concerns, competing mobile-phone
technologies and the cost of upgrading
pumps and point-of-sale (POS) regis-
ters [CSP—May ’12, p. 75]. But retailers
such as Woodbridge, N.J.-based Hess
Corp. are positioning themselves for
the future.
“We’ve been evaluating a lot of dif-
ferent options in the digital [payment]
space,” says Ethan Fitzsimmons, direc-
tor of foodservice, who also covers the
prepaid category. “We’re working with
[our supplier] to ensure we have the right
technology so that we’re ready.”
GPR GrowthOne of the reasons open-loop cards are
projected to surpass closed loop is the
growing number of businesses and gov-
ernment entities loading employee pay-
roll onto debit cards, says Ben Jackson,
senior analyst for Mercator.
Two indications of prepaid growing as
a financial service are the entry of major
operators and the positive forecast for
GPR. Jackson points to Dallas-based
7-Eleven working with Austin, Texas-
based NetSpend Corp. to bring the pre-
paid NetSpend Visa product to the chain.
He says Englewood, Colo.-based Western
Union has also entered the game with its
prepaid reloadable product.
Frank Squilla, senior vice president of
sales for InComm, Atlanta, adds to that
the entry of internet payments provider
PayPal, San Jose, Calif., and even celebri-
ties such as hip-hop recording artist and
producer Russell Simmons.
Mercator numbers show $57.2 billion
loaded on GPR cards last year, projecting
the number to more than double to $167
billion by 2014.
“This is a function of more and more
people using these cards for a variety of
reasons,” including budgeting efforts and
banking costs, Jackson says. “As you look
at [prepaid’s] role in the c-store world,
it can become not only another item to
sell and potentially on a repeat basis, but
[a foundation for] a relationship with
that customer, who’s now looking at the
c-store for financial services.”
People who don’t have bank accounts
or have minimal contact with banks—the
“unbanked” and “underbanked”—have
always been prime candidates for finan-
cial services, Squilla says. GPR is becom-
“We’re starting to see an upside in sales and areas of double-digit increases.”
Dialing Down into PrepaidRetailers appear to be benefiting from larger prepaid trends with open-loop prepaid cards and are considering newer payment
technologies, including those involving cellphones. For more on this survey, see the 2012 CSP Category Management Handbook.
Preparing for New Payment Types
Considering MadePayment type changes changes
Loyalty 29% 12%
2-D barcodes 29% 0%
Mobile payments 23% 0%
Near-field communications 18% 6%
New card types (EMV**/contactless) 12% 6%
Sources: CSP/Mercator Advisory Group 2012 survey involving 17 retail chains. * General purpose reloadable ** Europay, MasterCard, Visa—a standard for chip-based card payment
Prepaid Numbers
$16.5 millionAverage annual revenue
$1.3 millionAverage profits
$71,000Annual revenue per store
$300,000Annual profit per store
[Note: the following charts are taken from 2012 CSP Category Management Handbook.]
Financial Services Offered
Percent of retailers offering
Financial service
Prepaid phone cards 88%
Open-loop gift 65%
Closed-loop gift 65%
Money orders 59%
Prepaid financial-services 41%
Reload for GPR* 35%
Bill-payment services 29%
Check cashing 12%
Remittance 0%
C S P June 2012 117
ing a more viable way for c-stores to offer
those services.
As more players enter the GPR space,
the goal is to allow reloads from all of
them at the local c-store. “It’s exciting
for us,” Squilla says. “[We’re develop-
ing] a financial network to top up at all
locations … where it’s tied to PayPal,
Netspend and Russell Simmons. As more
sign on, they’ll have a presence at 150,000
[c-stores nationally].”
The other half of the equation is
consumer awareness, says Teri Llach,
chief marketing officer for Blackhawk
Network, Pleasanton, Calif. As the cards
become more visible in other channels,
c-store operators are seeing demand
rise. “The awareness is growing,” she
says. “[Prepaid is] morphing as the use
becomes more self-use.”
Gift-Card Diversion: A Statewide PulloutThe growth of prepaid has its drawbacks, with the category catching the eye of
lawmakers eager to repair budget shortfalls. In a current development, prepaid
suppliers have said they will pull all product out of New Jersey in response to a state
law attempting to claim unused gift-card dollars.
Based on laws that allow states to take over unclaimed funds from forgotten
bank accounts or overpaid cable bills, the New Jersey law passed in 2010 requires
retailers to get customers’ ZIP codes in an attempt to usurp gift-card dollars left
unused after a couple of years.
“There is an argument to be made for the role of government … but the whole
purpose is to reunite [the owners] with their unclaimed property,” says John Holub,
president of the New Jersey Retail Merchants Association, Trenton, N.J. “With gift
cards, there is no logic, because a gift card is purchased and given to someone as
a gift. But it’s potentially regifted 10 times over, so knowing the bearer of product
is quite difficult.”
Requiring only a ZIP code further clouds the matter, Holub says, with the plan
having logistical problems: “Clearly, there was never any intention of reuniting an
individual with the unclaimed balance.”
As a result, Blackhawk, InComm and American Express announced they will pull
product at the end of June. “New Jersey has always been a business-friendly state,”
says Frank Squilla of InComm. “We hope for a resolution.”
At press time, the pullout plans were still in place.
C S P June 2012118
Closed-Loop GrowthAs a side note, Jackson of Mercator says
closed-loop cards are still viable products,
with in-store gift cards and “incentive”
cards (wherein businesses give employees
these cards as rewards to drive behavior)
being the fastest-growing segments.
In fact, Mercator had to revise its ini-
tial projections about when open-loop
would surpass closed because the closed-
loop segment was actually larger than it
had originally estimated, Jackson says.
Branded gift cards were one of the
reasons Hess switched prepaid suppliers
at the beginning of the year, Fitzsimmons
says. Its new supplier, Blackhawk, offered
cards from the branded retailers Hess
customers were looking for.
“[Blackhawk] brought a variety of
options in prepaid, gaming, fashion, din-
ing, home improvement and digital con-
tent and all best in class—Xbox, iTunes,
Lowe’s,” Fitzsimmons says. “Brand makes
the difference.”
The category has been somewhat
flat the past two years, a reflection of
the changing telecom arena and the
various phone plans flooding the market,
Fitzsimmons says. But “we’re starting to
see an upside in sales and areas of double-
digit increases.”
“With gift cards and creative cards like
Groupon and digital content and gaming,
we’ve seen an uptick,” Llach of Blackhawk
says. “But not just for gifting but [again],
self-use. The last thing I want is to tie my
credit card to [my daughter’s] iTunes
account. A month later, I’d be knee-deep
in charges for her music.”
For many consumers, prepaid is the
right way to go with digital content, she
says. “That’s a big trend with reloadable
debit. The consumer says, ‘If I overdraft or
do something wrong on my bank account,
it’s [a fee]. I’d rather pay $3.95 to buy a
reloadable card and pay $2.95 to load it.’ ”
Mobile MovementIn tandem with GPR developments,
Squilla connects the dots back to the cell-
phone. InComm is working with provid-
ers to develop a prepaid mobile-payment
platform, where much of the reloadable
activity with cards at c-stores can now
happen using a cellphone.
The mobile wallet has the potential of
aggregating everything from credit and
debit cards to loyalty reward points and
gift-card totals. Payments and rewards
programs, such as the one deployed last
year by Seattle-based Starbucks, can
reside in apps on people’s phones.
“If people want to have apps, where are
they going to load value? They’ve got to go
to retail to do this,” Squilla says. “They’re
walking around with computers in their
pockets now. They need ways to transact
their commerce over their phones.”
And it’s not just the unbanked, Squilla
says. It’s the teenagers and college stu-
dents whose parents need ways to budget
their children’s spending. “Companies are
out there that are trying to build … trans-
actions geared to kids who purchase over
the Web, where there’s an online budget,
a virtual piggy bank,” he says. “Right now,
through the consent of a parent, they’ll
buy a cool ringtone. That’ll be $1.99 that
happens to be on the phone.”
In the future, Squilla believes that’s
the way most transactions will occur. “It’s
changing the way people do business.”
Retailers are already marketing to
customers online with their websites,
such as slurpee.com or speedway.com.
It’s the concept of digital delivery. A rel-
evant example today would be the online
Brand Pull: Officials with Hess Corp. say brand is important within the prepaid space.
C S P June 2012 119
“It’s the ‘now’ economy. I don’t want to go to the store; I want it now.”
purchase of a gift card that’s sent via e-mail or through a social
network. The recipient ultimately gets a bar code representing
a $25 credit sent to his or her cellphone.
One vision of this new process is people paying over the Web
vs. when they’re actually at the store. It becomes more of a pickup
or even delivery task vs. shopping and paying. “It’s the ‘now’ econ-
omy,” Squilla says. “I don’t want to go to the store; I want it now.”
Facing a Digital FutureRetailers still have time to respond to mobile payment, Hartman
of Rutter’s believes. Customers still need to feel comfortable
with apps with regards to security and the safety of their money.
In addition, retailers would have to invest in new equipment.
“Inside the store is the easiest place today to execute a mobile
prepaid transaction for c-stores, but even that often requires an
upgrade to a scanner and some software,” Hartman says. “Out-
side, however, is where the majority of our industry transactions
take place, and that is going to be a much heavier lift for our
industry because it may require the installation of a scanner or
[radio frequency] card reader at the pumps, both of which are
very expensive.”
In the face of these changing payment options, Squilla says
it’s important for retailers to position themselves for the future.
POS devices should be geared for mobile payment, either con-
tactless options or scanning, where price-look-up keys allow for
multiple denominations. Two more requirements are reloadable
capabilities in a price range of $20 to $500, and the ability to
settle daily transactions.
“All those things come into play as business continues to
morph with mobile payment, services, mobile communications
and top-ups,” Squilla says.
From his perspective, Hartman keeps an open mind. He
believes the push over the top for this type of transaction will
come from “left field.” The easiest way to envision prepaid
mobile happening is with the same mechanisms currently
used for credit and debit transactions, with the same proces-
sors, such as credit-card giants Visa and MasterCard, he says.
However, “I expect that in the next two years I’ll wake up and
see an announcement of a new, out-of-the-box approach to
handling these types of transactions,” Hartman says. “It will
make everyone say, ‘Why didn’t I think of that?’ ” n