The rapid take off of prepaid cards in the US last year looks set to be replicated in Europe in 2008. Stephen Timewell and Wendy Atkins report on the payment industry’s ‘next big thing’.
The vision of a cashless Olympics may not happen in Beijing this year but if Visa has its way, the London Olympics in 2012 will be cash free, built upon prepaid cards that have already taken off in the US, and look set to take off in Europe this year. While the marriage of prepaid and contactless cards has been slow, the success in the US of prepaid cards, both disposable and reloadable, bodes well for the European push across a number of customer segments, from money transfer to mobile prepaid shopping voucher and gift cards.
Demonstrating the strong demand for the cards, Carol Heath, Visa’s senior manager of prepaid, says that in December 2007, some 64% of Americans bought a prepaid gift card. These disposable cards, such as the IBM gift card, have a Visa limit of $750 and can be used for a variety of personal and corporate purposes. Ms Heath notes that the prepaid cards can be used as a more efficient way of getting funds to those making insurance claims. Such cards are expected to go on sale in supermarkets across Europe this year.
Coming attraction
Touted by the payments industry as ‘the next big thing’, Ralph Silva, senior analyst at TowerGroup, says: “European banks are attracted to prepaid cards for four primary reasons: the increasingly successful use of prepaid services in the US; the issues realised in Europe by the single euro payments area and the Payment Services Directive; the overall benefits to retailers, corporates, governments and consumers; and the fact that prepaid cards enable banks to gain new markets and customers.
“As a result, European banks see prepaid cards as a way to reach out to new consumer segments, to attract the unbanked to the bank, and to displace cash by providing anonymity and increasing convenience.”
While growth in European prepaid has been between 300% and 400% annually, it has grown from a low base. Visa says it had 900,000 cards three years ago compared to nine million today, with the great bulk of these of the reloadable type used in transport systems and for small payments.
Unlimited opportunity
The opportunities and the optimism surrounding prepaid appear unlimited. MasterCard Europe announced last year that according to research commissioned by Boston Consulting Group, spending on prepaid payment cards in Europe is estimated to reach $164bn by 2010. The research also revealed that while the UK is predicted to become Europe’s largest single market for prepaid card payments by volume, Russia and Poland will witness the deepest penetration of prepaid spending as a proportion of total spending using payment cards. The report also predicted that one of the main drivers of growth would be through government programmes, where prepaid can help reduce benefit fraud by driving cash out of the system.
Voucher service
Visa Europe, together with UK’s Monitise, announced a new mobile prepaid shopping voucher service late last year. This innovative new product will allow consumers across Europe to create a Visa prepaid account on their mobile handsets and load the account with funds from either a bank account or a credit or debit card. They can then either use the account for online purchases or send it to a third party via their mobile phone. Visa expects the service to be popular with the youth market and for gifts, and offers a variety of different ways to deliver real mobile payment services.
Mobile technologies will be the key driver of innovation in payments, creating exciting new opportunities. Banks such as UK’s Lloyds TSB and Spain’s Banesto have already launched prepaid money transfer cards to enable migrant workers to send funds back home and prepaid is expected to see huge growth in this segment.
One of the challenges of prepaid schemes is to deliver them via contactless cards. Prepaid rollouts, according to Richard Sanders of consultants ACI Worldwide, have not been announced as part of the contactless trials taking place in London. Nevertheless, in the US, MasterCard made progress in this area in late 2007. Mastercard released a prepaid reloadable travel card with Airlines Reporting Corporation. This travel card is available through ARC’s network across 20,000 locations and MasterCard says it is the first prepaid travel card in the US to be equipped with contactless technology.
While they are evolving slowly, the worlds of prepaid, contacless and mobile technologies are definitely converging and the day when the above services will all be available on mobile phones is fast approaching. This year is expected to be a landmark year for progress in payments in Europe and the dream of the cashless London Olympics in 2012 is becoming a reality.
