Through a special arrangement, presented here for discussion is an excerpt of a current article from Convenience Store Decisions magazine.
Payment alternatives for the nation's "unbanked" and "underbanked" customers are proving to be effective sales drivers. While gift card malls have been getting a lot of attention, prepaid debit, credit, gift and especially gas cards offered by Visa, MasterCard and American Express are quietly booming in popularity.
Prepaid's profit potential is fueled by wider social acceptance and the nation's growing population of "unbanked" lower-income consumers. What some refer to as the pay-as-you-go category--which includes prepaid wireless, long distance, debit cards and more--is becoming an increasingly popular method of budgeting. According to the Aite Group, prepaid debit card transactions will surge to $150 billion in 2009 from almost $13 billion in 2004. Prepaid wireless sales are expected to reach over $30 billion by 2010, versus $8 billion in 2005, according to Atlantic-ACM.
The industry buzz on prepaid "varies by what product you're talking about," said Michael Zielinski, president and CEO of Royal Buying Group, an organization of convenience store and petroleum marketers. "If you're talking telecomm you're talking about how flat the growth is, the continued shrinking of margins, the instability of a lot of the providers and not knowing if the carrier is going to stay in business or not."
Concerning gift cards, Mr. Zielinski said, "You have to think about which ones are still showing good growth--obviously gasoline is one of them--and which retail cards are flattening a little bit."
But Mike Skinner, general manager of Coinstar e-Payment Services, which works with the major carriers to provide PIN-based airtime replenishment, insisted prepaid wireless "continues to be a growth business," particularly given the tough economic conditions. Margins also tend to be significantly higher than core categories like cigarettes and salty snacks.
The "real massive growth" in the category has been in debit, asserted Bryan Zingg, vice president of sales for PaySpot, a provider of prepaid electronic payment processors.
"Prepaid debit loads as well as open- and closed-loop gift cards are such high growth areas primarily because they are new, but also because there is a huge, 30-million unbanked population out there," Mr. Zingg said. "They are looking for a way to load cash onto a prepaid debit card so that they can make purchases with the rest of mainstream society on the internet, or be able to carry less cash and have more of a bank-type product."
Typically, if c-stores are not doing well with prepaid the problem lies in merchandising, Mr. Zingg suggested.
"They don't have any point of sale in the store. When we set up in-store we put in a floor display rack with graphics on it to show the customer that they can buy their debit card and reload their debit card at the store," he said. "We make it very clear that the Joe Walmart cardholder can load that card at that store."
Discussion Question: What do you think of the revenue opportunity for prepaid cards? How can c-stores and other channels better exploit this opportunity?