Abstract
All 33 segments of the prepaid market operate in a significantly different
environment and as a result, each faces its own unique circumstances. The
diverse nature of the prepaid market makes it impossible to generate a single
characterization that accurately describes the entire prepaid market, even
though some experts have tried.
The latest report from Mercator Advisory Group "The Resilient Nature of
Prepaid: A Bright Spot in a Down Economy" reviews all 33 segments to
understand how the prepaid industry will ride out this economic downturn. The
surprising finding is that 18 of the 33 segments are likely to continue to see
positive growth while seven will likely see negative growth, while eight will
either be neutral or are too hard to call. The common characterization is that
consumer purchases of prepaid products at retail locations will experience
negative growth, but this ignores evidence that indicates some retail
categories have experienced a significant increase in growth rate.
For example, Open-Loop gift cards performed better than usual during the
holiday season, likely driven by consumer fears that some merchants would go
bankrupt. Other categories that have done well despite the poor economy
include the digital content segment and the online games segment. However, the
prepaid industry is far more diverse than just merchant gift cards. Prepaid
handsets are the fastest growing mobile phone segment, some of our active
troops are paid using prepaid cards, and prepaid is used to disburse funds
associated with a wide range of social programs, including SNAP (food stamps),
state unemployment, school loans, and as a financial instrument in prisons.
"It is understandable that many have focused on the challenges facing the
prepaid industry solely on the downturn in consumer purchases, but to do this
shows a lack of awareness regarding the power of channel development." Tim
Sloane, Vice President of Client Services and Director of Mercator Advisory
Group' s Prepaid Advisory Service and author of the report comments. "Many
merchants have expanded their gift card sales into online gift card malls,
have established B2B sales departments that sell to businesses that utilize
the cards for a variety of incentive purposes, and have established their
brand at a growing number of retail outlets using prepaid mall distributors.
Any sales channel can become saturated, but a growing number of leading
merchants are now recognizing the critical need to establish gift cards that
will be highly differentiated within each channel, so that its growth comes at
the competitor' s expense."
Highlights of the report include:
- A review of spend on credit, signature debit, and PIN debit by category
indicates that consumers are spending differently on key categories due to the
economic downturn and clearly this new behavior will also impact consumers
purchasing behavior related to prepaid.
While some prepaid categories have witnessed a significant drop in dollar
volume, these declines are more than compensated for by categories that have
grown. For example, while many consumers have reduced spending on clothing,
they now typically spend more on home repair.
Prepaid malls continue to be the bright spot in the prepaid market. Prepaid
mall sales converted a potentially terrible 2008 into a decent year for many
merchants. Some merchants that suffered negative growth for gift card sales
in-store, saw significant growth in gift card sales as they increased the
number of prepaid mall outlets at which they sold their gift cards.
Even when talking to merchants who suffered a decline in year-over-year gift
card sales, product managers indicated that prepaid gift cards remained a
bright spot for the merchant. In some instances, store sales were down by as
much as -30%, but gift card sales were only off by -6 or -7% - making the
prepaid gift card business a bright spot!
There are also several prepaid segments that, unfortunately, grow
significantly in a down economy. Unemployment compensation is up significant
and prepaid cards have now replaced checks in the most populated states, with
the exception of California. TANF, SNAP, WIC and other social programs are
likewise going to see increased spending and are widely using prepaid
instruments for these disbursements to eradicate checks. Transit has also seen
significant growth, although primarily due to the increased cost of gas. In
short, any credible analysis of the impact the economy will have on the
prepaid industry must evaluate all 33 prepaid segments, otherwise
opportunities will be lost and the economic consequences overstated.
Table of Contents
1. INTRODUCTION
2. THE RECESSION' S IMPACT ON PAYMENTS
- The Recession' s Impact on Credit and Debit Growth Rates
- The Recession' s Impact by Merchant Category Codes
3. THE RESILIENT NATURE OF PREPAID
- Open Loop Travel
- Reloadable Open Money and Financial Services
- Open Gift Cards
- Remittance Cards / P2P
- Business Travel Open and Closed
- Events and Meetings Open and Closed
- Employee and Partner Incentives Open and Closed
- Consumer Incentives Open and Closed
- Relocation Cards Open and Closed
- Campus Cards Open and Closed
- Closed Loop Digital Media
- Closed Loop Net Phone
- Closed Loop Games & Ring Tones
- Closed Loop In-Store Gift Cards -- Merchant Gift Down But Not Out!
- Closed Loop Distributed In-Store Gift Cards
- Closed Loop Social Security
- Closed Loop Food Stamps and WIC
- TANF Open and Closed
- Open Loop Court Ordered Payment
- Closed Loop Prisons
- Closed Loop Transit (Tolls and Light Rail)
- Open Loop State Unemployment
- Open Loop Insurance
- Open Loop Payroll
- Benefits Open and Closed
- Open Loop FSA/HSA Tax Deferred Programs
- Closed Loop Petroleum
- Purchasing Open and Closed
- Closed Loop Utilities
- Closed Loop Prepaid Mobile
- Closed Loop Prepaid Long Distance
- Closed Loop Prepaid Home Dial Tone
- Closed Loop Prepaid Internet Dial Up
4. THE RECESSION' S IMPACT ON PREPAID MALLS
5. CONCLUSION
List of Exhibits
- FIGURE 1: MERCATOR ADVISORY GROUP RESEARCHING ALL ASPECTS OF PREPAID
CHANNEL DYNAMICS
- FIGURE 2: EVALUATING THE IMPACT OF RECESSION ON EACH PREPAID SEGMENT
(GOOD/BAD/NEUTRAL)
- FIGURE 3: TRACKING THE RECESSION' S IMPACT ON U.S. GDP
- FIGURE 4: TRACKING VISA QUARTERLY PAYMENT TRANSACTION LEVELS
- FIGURE 5: TRACKING VISA QUARTERLY PAYMENT DOLLAR VOLUME LEVELS
- FIGURE 6: VISA AVERAGE TICKET VALUES HAVE STARTED TO DECLINE
- FIGURE 7: FIRST DATA SPENDTRENDTM DATA SHOWS IMPACT OF RECESSION DIFFERS
BY STORE CATEGORY
