Prepaid Cards Poised to Hit $200 Bn in Merchant Sales

Prepaid cards play a big and growing role in mainstream retail operations. In 2014, purchases made via prepaid cards are expected to surpass $200 billion, or 5% of the total retail spending in the entire U.S. The prepaid-card market is growing, and with it comes growth in the diversified use of such cards.

Certain factors are contributing to the growth of business through prepaid cards:

  • Prepaid cards help protect funds. If a card is lost, it can be canceled and replaced and funds can be restored.

  • Prepaid cards work well for employers who have to pay people who do not have dedicated bank accounts. This has led to growth in payroll deposited on prepaid cards.

  • Prepaid cards appeal to members of Gen X and Gen Y who are introduced to prepaid cards by their parents. Parents find prepaid cards safer than handing out checkbooks or credit cards to their children. This can also work with elderly people who aren’t capable of managing funds.

  • Prepaid cards are being distributed through card malls. A card mall is a centralized location containing prepaid cards from various retailers – basically a card rack. Card malls can be found in a variety of retail spaces, such as convenience stores, grocery stores and drugstores. The cards can be in the form of distributor-sold gift cards or branded gift cards.

Twenty-three percent of people in the U.S. hold some kind of prepaid card. Merchants are adopting different kinds of prepaid cards, ranging from gift cards to prepaid debit cards. Consumers can buy prepaid cards linked to various retailers. Large retailers, such as Walmart, Target and BestBuy, offer a variety of cards, while others, such as restaurants, prefer their own-branded prepaid cards. Once the funds on a prepaid card are depleted, the cards can be either reloaded or simply discarded.

Many merchants prefer their own-branded prepaid cards so they can learn more about customer preferences and drive sales. In a survey, it was found that 60% of merchants prefer loyalty through prepaid cards. About half of the merchants surveyed said that gift cards can act as a medium for profitable promotion. Closed-loop cards, which can be sold only in merchants’ individual stores, are the preferred choice for merchants. Closed-loop cards also help avoid transaction fees.

Prepaid cards are also going mobile, working through customers’ smartphones. A prominent example is the Target Mobile Gift Card. Prepaid cards are also witnessing celebrity endorsements, with several famous people promoting their own-branded prepaid debit cards.