Abstract
Open loop stored value products have enjoyed rapid growth in recent years in
the form of prepaid debit cards and gift cards. These products are tools that
have allowed innovators to meet ongoing market needs for enhancements in the
way people pay for goods and services. Indeed, stored value has the potential
to include tens of millions of adults who have been excluded from the
e-commerce revolution because they do not have access to credit or banking
facilities, but who have $1.1 trillion of income. The implications
reverberate across industry segments. Some estimates suggest open loop stored
value transactions could exceed $1 trillion in not so many years. A $1
trillion opportunity... how soon will that be... what are the challenges and
opportunities as existing players struggle to shift from one mode of payment
transaction to another?
The evolution of the payment process is very much continuing. Rapid advances
in information technology and mobile communications will continue to enable
innovators to make changes to the way individuals purchase and pay for goods
and services. Open loop stored value solutions will play a key role in
transforming how financial institutions interact with their customers. The
relationship between banks, merchants, and individuals is dynamic, and will
continue to evolve and change, sometimes fundamentally, over the next five
years and beyond. The role of open loop stored value cards in facilitating
emerging customer payment needs will be surprising to many industry observers.
The focus of this report is open loop stored value solutions. It provides an
overview of the U.S. open loop stored value market and delves into
applications, history and technology, major players, and market projections.
Nobody studies the emerging stored value market more consistently or
passionately than The PELORUS Group. For three decades we' ve been a
leader in identifying, analyzing and projecting forward where the different
prepaid markets are headed, as well as what the ramifications to industry
participants will be. We pull no punches. Our thought-provoking assessments
are hailed as cogent exercises in realistic market evaluation. Organizations
around the world tap into our prepaid expertise. “Stored Value: Open
Loop Markets” is an exclusive report, offering unprecedented depth
and a bold strategic perspective. Its insights and recommendations build upon
years of hands-on research into the rapidly changing credit/debit card
landscape. The latest entry in a series of landmark prepaid studies from The
PELORUS Group, “Stored Value: Open Loop Markets” may very
well be the most provocative such study to date.
Table of Contents
CHAPTER 1: Executive Summary
CHAPTER 2: Overview of the Stored Value Ecosystem
- 2.0 Introduction and Scope of Report
- 2.1 Definitions and a Brief History
- 2.2 The Continuing Evolution of Uses for Stored Value Cards
- 2.3 Four Party Payment System
- 2.3.1 Authorization
- 2.3.2 Clearing and Settlement
- 2.4 Interchange Fees
- 2.4.1 Recent (June 2006) Court Decision on Visa Fee
- 2.5 The Paradigm Shift Enabled By Mobile Payments
- 2.5.1 Symbiosis Between Stored Value and Mobile Payments
- 2.6 Stored Value -- Background on Fees
- 2.7 A Maturing Market -- The Situation Today
- 2.8 Gift Cards
- 2.9 Emerging Competitor Offerings
- 2.9.1 Automated Clearing House -- Based Debit Payments
- 2.9.2 Online Payments Pilot Using ACH
- 2.9.3 Major Corporation Entry -- ADP, Wal-Mart
- 2.10 Stored Value Distribution Business Model
- 2.11 Loading Networks
- 2.12 The Consumer Value Proposition
- 2.13 The Corporate Value Proposition
CHAPTER 3: Stored Value Applications
- 3.0 Introduction
- 3.1 Open Systems
- 3.2 Closed Systems
- 3.3 Unique Dimension of Stored Value
- 3.4 Network Product
- 3.5 Smart Cards
- 3.6 Consumer Applications for Open System Cards
- 3.6.1 General Spending (Prepaid Debit Cards)
- 3.6.2 Travel Cards
- 3.6.3 Money Transfers
- 3.6.4 Incentive and Promotion
- 3.7 Evolution of Prepaid from Telephony to Stored Value
- 3.8 m-Wallets
- 3.9 Business Applications for Open System Cards
- 3.9.1 Payroll Cards
- 3.9.2 Payroll Cards: A Growth Opportunity for Banks
- 3.9.3 Controlled Spending Accounts
- 3.9.3.1 Insurance Payments
- 3.9.3.2 Flexible Spending and Health Savings Accounts
- 3.9.3.3 Business Expense Accounts
- 3.9.4 Loyalty Programs
- 3.9.5 Vending
- 3.10 Government Applications for Open System Cards
- 3.10.1 Food Stamps
- 3.10.2 Court Mandated Payments
- 3.10.3 Other Disbursements
- 3.10.4 Transit Systems and Parking
- 3.11 Not-For-Profit Applications
- 3.12 Multi-Function Cards -- Competitive Advantage and Possibilities
CHAPTER 4: Technology and Infrastructure
- 4.0 Introduction
- 4.1 Magnetic Stripe Cards
- 4.2 Origin of Prepaid Point of Sale Activation
- 4.3 Point of Sale Activation Systems (POSA)
- 4.4 Loading Networks
- 4.5 Credit Card, Debit Card, and Check Transaction Trends
- 4.6 In-House Processing vs Processing Services
Table:
- 4.1 PIN-Based Debit Card Usage
CHAPTER 5: Regulatory and Security
- 5.0 Introduction
- 5.1 USA Patriot Act
- 5.2 Escheat Laws
- 5.3 Payroll Laws
- 5.4 Fraud Prevention
- 5.5 Potential for Money Laundering
- 5.6 Consumer Protections
CHAPTER 6: Major Players
- 6.0 Introduction
- 6.1 American Express
- 6.1.1 American Express Incentive Services (AEIS)
- 6.2 Blackstone
- 6.3 Chase Paymentech Solutions
- 6.4 Checkfree
- 6.5 Chockstone
- 6.6 Coinstar
- 6.7 Discover Financial Services
- 6.8 eCommLink
- 6.9 EFD eFunds
- 6.10 Emida (Debisys, Q Comm)
- 6.11 First Data
- 6.12 Fiserv
- 6.13 FSV Payment Systems
- 6.14 Galileo Processing
- 6.15 Global Pay Solutions Incorporated (GPSI)
- 6.16 Green Dot Network (formerly Next Estate Communications)
- 6.17 i2c Inc.
- 6.18 ikobo
- 6.19 InComm
- 6.20 MasterCard Worldwide
- 6.21 Metavante
- 6.22 MoneyGram International
- 6.22 NetSpend
- 6.24 nFinanSe (formerly Morgan Beaumont)
- 6.25 Ta' Facil Corporation
- 6.26 Tempo Payments
- 6.27 Visa International
- 6.28 Western Union
CHAPTER 7: Market Forecasts
- 7.0 Introduction
- 7.1 Cards -- Current Credit and Debit Markets
- 7.2 Credit Card Projections
- 7.3 Debit Card Projections
- 7.4 Stored Value Cards
- 7.4.1 Prepaid Debit Cards
- 7.4.1.1 Government Programs
- 7.4.1.2 Payroll Cards
- 7.4.1.3 Medical Health and Flexible Spending Accounts
- 7.4.1.4 General Spending Cards -- Open Loop
- 7.5.1.5 Gift Cards -- Open Loop
- 7.5.1.6 Gift Cards -- Closed Loop
Figure:
- 7.1 Credit Cards -- Dollar Volume -- 2006 to 2011
- 7.2 Debit Cards -- Dollar Volume -- 2006 to 2011
- 7.3 Number of Debit Card Transactions -- 2006 to 2011
- 7.4 Average Value of Debit Card Transactions -- 2006 to 2011
- 7.5 Debit Card Transactions -- PIN vs. Signature -- 2006 to 2011
- 7.6 Prepaid Debit Cards -- Dollar Volume --2006 to 2011
- 7.7 Open Loop Prepaid Debit Cards -- Dollar Volume -- 2006 to 2011
- 7.8 Number of Open Loop Debit Cards Issued -- 2006 to 2011
- 7.9 Government Prepaid Debit Cards -- Dollar Volume -- 2006 to 2011
- 7.10 Number of Government Prepaid Debit Cards Issued -- 2006 to 2011
- 7.11 Payroll and Benefit Cards -- Dollar Volume -- 2006 to 2011
- 7.12 Number of Payroll and Benefit Cards Issued -- 2006 to 2011
- 7.13 Medical and FSA Cards -- Dollar Volume -- 2006 to 2011
- 7.14 Number of Medical and FSA Cards Issued -- 2006 to 2011
- 7.15 General Spending Cards -- Dollar Volume -- 2006 to 2011
- 7.16 Number of General Spending Cards -- 2006 to 2011
- 7.17 Open Loop Gift Cards -- Dollar Volume -- 2006 to 2011
- 7.18 Number of Open Loop Gift Cards Issued -- 2006 to 2011
- 7.19 Closed Loop Gift Cards -- Dollar Volume -- 2006 to 2011
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