Branded Prepaid Growth Is Lapping That of Private Label, Report Says

The two major sides of today's prepaid card industry, branded or general purpose on one side and private label on the other, both still have enormous growth potential, but the branded side has the stronger prospects, according to a new report from Boston-based financial research firm Aite Group LLC. Aite estimates the value of prepaid card spending was $64 billion in 2004 compared with $113 billion forecasted for this year and $178 billion by 2010. A 2005 Aite report forecast a 64% compound annual growth rate for prepaid card volume between 2004 and 2009, but Aite has scaled that back to 35% largely because of slower growth by some major processors. That's still an enviable market to snatch, and most of it will go to branded cards, which typically carry the logo of a major network such as Visa, MasterCard, or Discover. That's because newer forms of prepaid cards such as payroll cards, health-savings account cards and others linked with medical payments, incentive cards, and other innovative cards tend to carry major-network brands, according to Gwenn Bézard, research director at Aite. Branded cards will have 44% of the prepaid market by 2010 compared with only 20% in 2004, according to the report. Aite forecasts $32 billion in spending on branded prepaid cards this year and $79 billion by 2010 for a compound annual growth rate of 36%. About two-thirds of their volume comes through cards issued on behalf of government agencies and corporate clients. In contrast, most private-label prepaid cards are issued on behalf of retailers, according to Bézard. “The opportunities for branded are more significant,” he says. “The private-label cards have lots of room to grow, but private-label prepaid cards are mostly about gift cards.” The report estimates the value of private-label prepaid transactions at $81 billion this year and $99 billion three years out, with a compound annual growth rate of 8% between 2006 and 2010. Aite predicts prepaid card transactions in the U.S. will hit 7.0 billion in 2010 compared with 4.3 billion this year and 2.4 billion in 2004. In all, prepaid cards will account for only 1.2% of U.S. personal consumption expenditures (PCE) this year, according to Aite. By 2010, prepaid cards' share of PCE will hit 1.6% compared with just 0.8% in 2004. The prepaid market may lose its distinct identity as it grows and diversifies, just as the Internet is no longer thought of as one, omnipresent computer network like it was in the 1990s, according to Bézard. He notes there is little in common between a prepaid card linked to a flexible spending account and a gift card from a retailer. “What we call the prepaid card industry is going to dissolve, because most of the companies that are in the prepaid card business?processors and marketers?tend to focus on industry segments,” he says. “You no longer have a distinct Internet industry anymore; you have a lot of industries using Internet services.”