Merchants’ affair with prepaid card providers leads to love for increased consumer sales

Prepaid providers showing return on investment to merchants will be most successful, says Aite Group.

Boston, April 9, 2014 - 

Research from Aite Group included in its new report, Prepaid Mania: A Merchant Affair, shows how merchants are pushing prepaid card sales to generate revenue, includes perceptions about prepaid card marketing strategies, and reveals trends, such as new technologies and cost-containment measures, that appeal to select merchants. 

The research study shows how prepaid providers, processors, merchants, and networks are working to support growing merchant prepaid card sales. Aite Group partnered with InComm and conducted a survey in Q4 2013 of 35 industry executives from a wide array of merchant companies that sell gift and prepaid debit cards in the United States. The executives and organizations represented in the survey include large, well-known national brands and recognizable regional retailers. 

 


Prepaid cards are an important sales category for U.S. merchants. Therefore, Aite Group recommends that prepaid providers, networks, and marketing organizations partner with merchants to support sales growth that includes increasing the types of prepaid cards sold and the number of different card brands offered. Providers may therefore provide improved promotion of virtual prepaid cards at selected merchants, offer digital wallets, and create prepaid card type-specific ROI models that show the benefits of card acceptance compared with acceptance costs.

Merchants may also benefit from experimenting with giving away gift cards as an incentive to drive higher sales of goods and services and look more to evaluate location-based marketing solutions based on their long-term potential rather than the initial level of investment. Merchants are now on the lookout for partnership opportunities with payment providers—opportunities that deliver on incremental revenue or new services that enhance the consumer shopping experience.

Prepaid card sales equal high-margin revenue. So Aite Group expects large merchants such as big-box stores, drugstores, grocers, and convenience stores to stock displays full of ever more varied prepaid card types and brands. More than 70% of participants surveyed currently sell open-loop (a card with a network logo on it) and closed-loop (no logo and for use at specific locations only) third-party gift cards as well as their own retail branded closed-loop cards and prepaid debit cards. 

Though less than 50% of the responding merchants are partnering today, more than 50% will be partnering or are planning partnerships between now and 2015. The majority of all respondents will be partnering with Visa, Facebook, MasterCard, and American Express. Additionally, at least 30% of the merchant responders will also be partnering with MCX, PayPal, and Google between now and 2015, and at least another 15% will partner with Groupon, Square, and Amazon. 

“'Dynamic' is the best word to describe merchants' quest for revenue,” says Madeline Aufseeser, senior analyst in Retail Banking at Aite Group.

“In addition to considering new products and tools supporting sales initiatives, they also are looking at partnerships. Companies that can formulate a meaningful strategic value-added service for merchants should approach merchants with new ideas that result in revenue growth.”