Thursday , November 21, 2024

Public Sector Drives Network-Branded Prepaid Card Growth

The dollar value loaded onto so-called network-branded or open-loop prepaid cards grew nearly 45% last year, or nine times the growth rate of closed-loop cards, according to a new report from Mercator Advisory Group. Mercator's fifth annual study of network-branded cards says the public sector is emerging as one of the market's biggest growth drivers. Prepaid cards carrying a general-purpose network brand such as Visa, MasterCard, American Express, or Discover racked up $38.7 billion in loads last year, up 44.5% from $26.7 billion in 2006, according to the report. The closed-loop market, those prepaid cards good at a single merchant, remains much larger, with $179.6 billion in loads last year, but was up only 4.9% from $171.2 billion in 2006. In all, Maynard, Mass.-based Mercator estimates the open- and closed-loop prepaid markets combined grew 10.3% last year to $218.3 billion from $197.9 billion in 2006. Network-branded cards now account for 17.7% of total prepaid load volume compared with 3.9% in 2003. Network-branded versions of the gift card, the standard bearer of the prepaid market, grew by 70% to an estimated $5.03 billion in loads last year. But it's the public sector, which is seeking alternatives to costly paper checks to disburse benefits, that's emerging as the new source of big growth in network-branded cards, according to the report by Tim Sloane, director of Mercator's debit and prepaid advisory service. Loads on state unemployment cards grew 150%, while court-ordered payments such as child support grew 82%. Some processors and banks are pursuing the public prepaid card sector and related markets such as workers' compensation as a new niche (Digital Transactions News, Aug. 14). Next up is Social Security, which is just starting its conversion to cards but against which the other types of benefit cards “will pale in comparison,” says a Mercator release. Social Security deployed its first open-loop pilot program in 2007, with an estimated load of $10.6 million. The public sector is “under the same pressures [as private companies] to convert from paper to electronics,” Mercator senior analyst Brent Watters tells Digital Transactions News. “I think they're starting to understand the benefits of a prepaid card, especially for a [consumer] sector without bank accounts.” Government benefits, however, are far from being the only source of growth in open-loop prepaid cards. Loads on so-called “incentive” cards for consumers grew 87% last year, the report estimates, while employee-incentive and related cards grew 83.4%. These figures include loads on cards issued under the American Express Incentive Services program and other semi-open, Restricted Authorization Network (RAN) programs such as prepaid cards good at the stores in specific malls. The report notes while 45% is still an impressive growth rate, some sub-sectors of the network-branded prepaid market are coming down from triple-digit growth rates. Part of that is the result of a larger base of load volume that makes such high growth rates difficult to sustain. But in some categories, notably gift cards, traditional distribution channels such as so-called card malls in grocery stores or drug stores are showing signs of maturity. “New distribution channels have to be created,” says Watters. Mercator's report did not estimate card numbers due to the difficulty of obtaining reliable data, according the Watters. The load estimates are based on data supplied by card networks, processors, and prepaid card issuers.

Check Also

A Senate Panel Sends a Signal: Time to Cut a Deal on Swipe Fees

Members of the Senate Judiciary Committee told representatives of Visa Inc., Mastercard Inc., and the …

Digital Transactions