The Challenges of Prepaid Cards Business Date:   Monday , August 31, 2009 Research indicates that the global economic downturn is weighing heavily on the growth of the card markets (credit and debit) worldwide, while fuelling a demand for prepaid cards. The players in the prepaid industry segment (FIS included) however, discover some unique challenges in growing the business. Here are some of my thoughts. The most important challenge among them is legal and regulatory requirements, which is followed by market infrastructure and readiness. Influencing policy when the world staggers under the burden of a somewhat failed system is a tough proposition; converting a marketplace full of skeptical consumers is another challenge. Education, evangelizing, and marketing remain the top three priorities for prepaid marketers. The rest of the things-to-do like product design and selection, business models, and strategies can be managed within individual boardrooms. “Going after prepaid opportunities in the international market requires more than just an understanding of the macro-economies and regulatory environments in each market,” comments Terry Xie, Director, International Payments Advisory Service, Mercator Advisory Group. Legal, regulatory, and cultural differences in international markets are significant and therefore, a prepaid product has to be very region-specific. Another factor to keep in mind is out-of-the-box thinking. This is crucial as the prepaid business is a non-traditional market for the banks. Innovations in providing prepaid solutions to identify and serve unmet financial needs bring lots of potential. The value chains of the prepaid card industry in different markets tend to be complicated and demand careful considerations in the designing of a prepaid business model. For example, in India no retailer can on its own have a prepaid card without partnering with a bank as its bin provider. This, apart from the network provider (Visa or MasterCard), plus a third party infrastructure support provider, stretches the value chain quite a bit. Thus, getting different parties involved and building a business ecosystem requires creative thinking and a willingness to cooperate. In-depth understanding of the market opportunities and consumer behavior is critical. Take the case of two new prepaid cards that were launched in the UK recently. One, 'Cash Manager' for adults looking to budget in tough times and the other, ‘Load & Go,' aimed at teens that are not just looking for a safer alternative to cash but also want to shop online, but can do so by borrowing their parents' cards. A reloadable card (linked to their parents' accounts) for teenagers, age 13 and up seems such a great idea. With this card, parents teach children money management, nay, manage their own better. Children get to buy only things that are 'allowed,' since, the cards are programmed to deny, e.g., a purchase at an adult Internet site or liquor store. Parents can pack off their children with this new card to boarding schools, summer camps, and the like without a worry about watching their spending. In fact, they will be able to see it all the time, every time the card is used, from the SMS they will receive. How? The company that launched them, O2, is the UK’s leading mobile company. Analysts are betting on this telecommunications company for bringing a fresh approach to financial services. This, in a way, is a step toward integrating the wallet with the mobile. Also, since the majority of prepaid programs have been developed by building a customer base, marketing the card by this telco to its millions of existing customers will not be as expensive as reaching out to new ones. Reducing customer churn also makes a good reason for entering this business. I am sure there are many others. Globally, 33 segments are known to exist in the prepaid market, all of which operate in unique environments. A new analyst report reviewed all 33 segments to understand how the prepaid industry will ride out of this economic downturn. It found that 18 of the 33 segments are likely to continue to see positive growth, seven will see negative growth, and eight will be neutral or are too hard to call. Categories that have done well despite the poor economy include digital content and online games. However, the prepaid industry is far more diverse than just gift and travel cards. Prepaid handsets are the fastest growing mobile phone segment in India. In the US, many 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 in prisons. While it may take a while for the rest of the world to adapt, I am hopeful that India, which frog leaped technologies during the telecom boom, will soon think of state disbursements to the needy and deserving using prepaid technology. Prepaid technology will make it safe and secure. It will also ensure that the right money reaches and is utilized by the right person. The author is Senior Vice President and Country Manager, India Markets, Fidelity National Information Services (FIS)