The Prepaid Incentive Cards Market

April 2007 By Prepaid Media – The buzz about network branded prepaid cards began in the incentive industry about 10 years ago; since then, they have grown in popularity as an incentive product. Compared to the first prepaid incentive cards, today’s products are significantly more sophisticated in terms of features and functionality, less costly to implement, and available faster to meet the needs of a broader spectrum of clients.

Prepaid Media interviewed some of the leading participants in the prepaid incentive card industry and asked about the market for these cards and expectations for the future.

Prepaid, Not Debit

When first introduced and for many years, network branded prepaid cards were referred to as ‘debit’ or sometimes ‘stored value’ cards by the incentives industry. With greater exposure to these card products, the nomenclature is changing.

‘We have shifted to ‘prepaid cards’ as the term of choice,’ states Patty Saari, director of prepaid card services for Carlson Marketing of Minneapolis, Minn. ‘Debit brings the baggage of accounts that may exist, and stored value has other confusing historical references that may mean products like metro cards.’

Mike DePaul, director of technology and product development for Rosemont, Il.-based Marketing Innovators International Inc., concurs. ‘From an industry perspective, prepaid is becoming the more prevalent term,’ he says. But, he acknowledges that clients continue to call them debit cards, perhaps reflective of the fact that the word ‘debit’ appears on MasterCard and VISA prepaid cards. James Menadier, general manager of the corporate incentive group for St. Louis, Mo.-based America Express Incentive Services (AEIS), says AEIS refers to the products as prepaid and attempts to educate others about the term. ‘Prepaid is becoming the lexicon of the industry.’ But, Menadier agrees that this terminology is not yet fully adopted by clients. ‘In the corporate environment, clients often refer to them as stored value cards.’

Market Size and Potential

The exact size of the incentives industry is the subject of debate. Nancy Serrato, a board member of the Incentive Marketing Association, former president of the Incentive Gift Card Council, and president of Innovative Card Consulting, pegs the size of the incentive industry at about $30 billion.

Menadier generally agrees. ‘Typically, the non-cash incentive space is estimated at $25-28 billion,’ he says.

According to DePaul, estimates of the size of the incentives industry range broadly, from as little as $20 billion to as much as $70 billion, with the lack of a sound definition distorting estimates. Regardless of the size of the market, there appears to be a broad industry consensus that the overall incentives market is growing. ‘Today, we are doing less evangelism and talking more to clients who understand that incentives are the way to go,’ DePaul says.

A Growing Opportunity for Prepaid Cards

The real question is whether prepaid cards will serve as a niche product or become part of the mainstream for delivering incentives and rewards.

Saari is optimistic about the potential, in particular with the ability of prepaid cards to continue to replace cash. ‘I see prepaid capturing a significant share; I don’t see it as a niche at all,’ she says. ‘Since prepaid appeared on the radar and the market has matured, more people are realizing that they can use prepaid cards to replace traditional cash incentive programs.’

Saari cites the ease of administering prepaid card programs as one reason they will continue to gain adoption. ‘Overall, we are seeing double- sometimes triple-digit growth,’ says Saari, who attributes some of the increase to smaller companies that are willing to move their cash incentive programs to prepaid cards.

‘It’s a large market that has traditionally been in the travel and merchandise sectors,’ adds Menadier. ‘Prepaid within the incentive space is becoming a much larger piece of the pie.’ According to Menadier, prepaid incentive card growth is being fueled by other types of rewards being replaced with prepaid products and the ability to co-brand prepaid cards. He also points to new types of programs, such as corporate-sponsored health initiatives, that offer entirely new opportunities for cards. (See related article Health, Wellness, and Prepaid Reward Cards, April 2007).

Saari concurs that prepaid cards provide benefits that merchandise simply does not offer. ‘Most participants believe it is inappropriate to have a corporate logo on merchandise-like a toaster or furniture. There is an opportunity to brand a card and for every piece of communication to be consistent with the theme of a gift card program,’ Saari says. ‘It’s an easy sell on the branding side when you have a payment vehicle that is presented at the point of sale time and time again and reinforces the corporate brand.’

DePaul says he sees prepaid cards as a new and evolving product that is gaining significant traction in incentives. ‘There are all sorts of companies providing cards in the incentive space, and that is a clear indication that this is certainly a growth market.’

According to Serrato, with the overall greater adoption of branded prepaid cards by consumers, it is only logical that there is greater use of the products by corporations to incent employees. ‘Companies are seeing that there is a great demand for these products and starting to get smart about it,’ Serrato says. Menadier concurs, crediting the overall movement from paper to plastic payments as a driver of growth and reason for the substitution of various other reward types with prepaid cards.

Industry and Program Segments

While prepaid cards have broad application across many different types of incentive programs and industry segments, some areas have gained better traction than others.

‘I see prepaid predominantly used in sales programs and channel management programs,’ says DePaul. ‘From an industry perspective, automotive and telecom are two leaders in the usage of prepaid cards in the incentives space.’

According to DePaul, certain dynamics of these industries make them well suited to incentive programs employing prepaid cards. These industries are highly competitive with specialized personnel and a limited talent pool. ‘If one company offers the product, then others follow along and do the same,’ he explains.

While historically, prepaid card programs were better suited to larger programs, they are now cost- effective for even small ones.

‘Years ago, a custom-branded card program was not a reality for mid-sized players, because there was a cost barrier to entry,’ says Saari. ‘An evolution to more off-the-shelf, quick-to-market products is where we’ve seen a lot of evolution over the past few years. Now you have smaller companies, not just big players, putting millions of dollars on cards and wanting to take advantage of branding opportunities and partnerships with a network like VISA or MasterCard.’

Some Remaining Challenges

But there are issues that stand in the way of the growth of prepaid cards in the corporate incentive market.

DePaul acknowledges that margins for incentive companies are higher with travel and merchandise reward programs compared to prepaid cards, so there is not as much motivation to offer prepaid cards. ‘I classify prepaid cards as something you have to have in your bag,’ DePaul says. ‘You have to be able to offer prepaid cards if they are requested or if they fit the program, but they’re not the first thing we pull out of the bag.’

According to Menadier, the international market presents both significant opportunity for growth as well as need for improvement. ‘The biggest unmet need at this time is a true global acceptance,’ he says. Menadier believes that this is a challenge that will be overcome in the years to come.

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