With Some Network Help, ShopNBC Cuts Its Prepaid Card Losses

Writeoffs stemming from transactions on prepaid cards, which had been swelling at online merchant ShopNBC, have eased considerably in the past few months, the retailer reports. Bad debt attributable to the plastic accounted for 3% of total writeoffs for 2005 at ShopNBC, which sells jewelry and electronic gear online at an average ticket of $180. That's down from a 10% rate the merchant was running late last summer, when it discovered some customers who were using stored-value cards to buy merchandise on the Web site were allowing their cards to run out of value while payments were still pending (Digital Transactions News, Aug. 11, 2005). Because of its high tickets, about 65% of ShopNBC's sales are financed on installment plans. Joan Radtke, director of credit at ShopNBC, called prepaid plastic the “big bane of our existence” last summer while describing the bad-debt problem to an audience of catalog and Internet retailers attending a conference in Chicago. Indeed, the retailer was sustaining a loss rate out of proportion to the share of sales prepaid cards account for. Debit cards in general generate 27% of ShopNBC's sales, with prepaid cards accounting for less than 1%, according to Radtke. The majority of sales occur on credit cards. She credits the improvement since August to the willingness of American Express Co., Discover Financial Services Inc., and Visa USA to make available the bank-identification-number (BIN) ranges for the prepaid cards they or their members issue. “Visa, American Express, and Discover have finally acknowledged that stored-value cards do create an issue for merchants that do installed billing,” she says. “[They] have given us some tools to work with. We can be more proactive.” Armed with this data, ShopNBC has been able to identify customers who used prepaid cards to pay for goods in installments and coax them into using another card to pay the remaining balance. Customers whose balances are already written off are referred to collections. In return for the BIN ranges, Radtke says, ShopNBC signed an agreement with each card company in which the merchant said it would not refuse to accept prepaid cards bearing the networks' brands. MasterCard International, she says, has not yet made its stored-value BIN range available. Visa had already begun doing so when Radtke spoke about the problem in August. Even with writeoffs easing, however, ShopNBC continues to face operating costs because of prepaid cards, particularly in the back office, Radtke says. “The operational aspect of contacting customers is still costly,” she says. ShopNBC is a unit of ValueVision Media Inc, an Eden Prairie, Minn.-based distributor of home-shopping programming via cable TV, satellite, and the Web. The NBC TV network owns 40% of ValueVision.