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  1. Analysis
December 9, 2009

Prepaid in pole position

At this years Prepaid Cards Summit, held in Rome on 12-13 November, delegates were left in no doubt that, despite difficult economic circumstances, there are many opportunities for prepaid to stand out from the crowd across many industry segments Rome was the setting for the fifth annual Prepaid Cards Summit on 12-13 November, which welcomed over 320 delegates from around the world, representing banks, payment networks, vendors and programme managers, and an array of leading prepaid industry speakers who gave their market-shaping insights into one of the most dynamic areas of the payment industry.

By Verdict Staff

At this year’s Prepaid Cards Summit, held in Rome on 12-13 November, delegates were left in no doubt that, despite difficult economic circumstances, there are many opportunities for prepaid to stand out from the crowd across many industry segments. John Hill and Victoria Conroy report.

Rome was the setting for the fifth annual Prepaid Cards Summit on 12-13 November, which welcomed over 320 delegates from around the world, representing banks, payment networks, vendors and programme managers, and an array of leading prepaid industry speakers who gave their market-shaping insights into one of the most dynamic areas of the payment industry.

Poste Italiane leads the way

Rome was a fitting location for this year’s event, given that Italy is inarguably the most successful and vibrant prepaid market in Europe (see CI429). Indeed, Italy is home to one of the world’s most successful prepaid programmes, the Postepay card offered by Poste Italiane, which now has 5.6 million cards in issue.

Flavio Mastrangelo, head of prepaid products at BancoPosta, the financial arm of Poste Italiane, and Alessandro Albano, head of payment systems at BancoPosta, both took to the stage to outline the development of the programme to date and newer prepaid innovations that the organisation is now rolling out. Now in its sixth year, the Poste Italiane Postepay card has proved incredibly popular with younger consumers. Around 48 percent of Postepay holders are under the age of 30, who account for 55 percent of all transactions.

However, Postepay is not just a product for young consumers in Italy – 10 percent of customers are non-Italian, and 30 percent of all Postepay transactions take place abroad. Around 54 percent of Postepay transactions take place on the web. The success of the product has provided Poste Italiane with a valuable cross-selling tool – 52 percent of Postepay customers have another Poste Italiane product.

Poste Italiane is now branching out into other prepaid products, such as a corporate offering and the launch of Poste Italiane as a mobile network operator to capitalise on the synergies between prepaid and mobile payments. In 2007 it also launched a contactless card and there are now 60,000 active cards in the marketplace, which has led to Poste Italiane developing multi-application prepaid propositions for use in the transit and access spaces. Its latest product launch in January 2010 will be the ‘Postepay&Go’ contactless prepaid card for use in public transportation in the city of Ravenna. And Poste Italiane is also moving into the money transfer space through its Postepay TWIN proposition, which is targeted at the international remittance segment and is a prepaid card-to-card solution available at over 14,000 branches of Poste Italiane.

Michael Birchall, prepaid product manager at the UK Post Office, gave an exclusive launch announcement to the Summit. Following on from the launch of the Travel Money prepaid card in 2006 and the Christmas Club and Gift card in 2007, the Post Office has taken the decision to launch a prepaid closed-loop card, the Post Office Budget card, in 2010.

It works as a deposit product issued by the Bank of Ireland and works in the same way as Post Office savings stamps. Birchall also announced that the Post Office is considering launching a sterling denominated general-purpose prepaid card to leverage the Post Office’s network and brand.

An OJEU (Official Journal of European Union) tender notice will be published in December 2009 or January 2010 to engage with interested parties, with Birchall telling delegates to “watch this space”.

One of the most interesting and successful applications of prepaid cards has been the Government benefit scheme currently running in Italy. Mattia Adani, director for special projects, research and analysis at the Ministry of Economy and Finances, explained how the programme, run in conjunction with Poste Italiane, works.

“The programme is the payment of social benefit using a prepaid debit card. Once people pass the screening we give them a prepaid card with €80 [$119] loaded,” Adani said.

From there, every two months we reload the card with €80 and with every reload we recheck all the requirements. The target participants for the scheme are low income citizens with an adjusted annual income of €6,000 or less. This is what is called an absolute poverty programme in that these are very poor people.”

There are many problems associated with welfare; distributing the money, making sure the money goes to the right person, attempting to get the recipient to spend the money on crucial items and assessing the right amount of welfare to allocate. Adani says that in the Italian system, several of these can be addressed with relative ease by using prepaid cards.

“The benefits card can only be used in grocery stores, pharmacies or to pay utility bills. There is also a filter in the card, which makes it impossible for users to withdraw cash at ATMs,” he added.

“So far we have screened 800,000 applications and admitted 620,000 participants. Of those, around 500,000 are still in the programme. There is a pretty quick turnover for two reasons; the programme is designed for the very young and the very old, so basically people will leave because they pass away or because they grow too old for the programme.

“So far we have loaded €270 million onto the cards of which more than €200 million has been spent in 9 million transactions. So far the average load per card has been €520, although 5 percent have had more, which happens because families can choose to put all their eligible children on the same card.”

Challenges to overcome

Volker Schloenvoigt, manager at payment consultancy Edgar Dunn and Co’s London office, voiced some concerns that perhaps some mature countries were still not ready to accept prepaid cards. Germany in particular was singled out as a market that has been very reluctant to embrace prepaid.

“The problem in Germany is that it hasn’t really caught on,” he said.

“There are about 200,000-300,000 active cards, ignoring gift cards, and there has been some very interesting research recently by the German central bank, looking at payment preferences of consumers. Their conclusion was that only about 0.2 percent of transactions by value are going through prepaid cards at the moment. I have seen figures from a third party recently that indicated the prepaid opportunity in Germany next year would be roughly €10 billion.

“If we assume that is roughly about €600 billion to €700 billion worth of retail transactions in Germany and we cover 0.2 percent, then it is roughly €1 billion to €1.5 billion going through prepaid cards, which leaves a huge gap between where we are now and where we might be in 12-18 months time.”

Schloenvoigt went on to say that part of the problem is that Germany has been regulated in such a way as to make many of the key starting points of prepaid unnecessary, such as the issuance of prepaid to the underbanked. For example, German banks by law have to provide people with current accounts, meaning that by definition the number of unbanked people is very low.

He the explained how despite a problem with fee structuring, many banks are still continuing with their prepaid programmes.

“In Germany there are free credit cards with free ATM access and so forth, and so when you look at some of the prepaid card pricing it might not necessarily be very competitive,” Schloenvoigt added.

“If you are targeting the unbanked, and then charging €40 a year management fees plus all sorts of other costs, intuitively that doesn’t quite work. Fee levels are quite high, and if you speak to some of the banks that are operating in that particular industry they will say that even with that fee structures they are just about breaking even.

“However, they will also say they don’t mind just breaking even with these products, because it gives them the ability to then cross sell other financial products to the young population and try to hook them with this type of card.”

Prepaid in emerging sectors and markets

Fiona Duncan, vice-president at Visa Europe heading up the Prepaid Centre of Excellence, spoke about upcoming technologies in the prepaid and contactless card sphere, explaining what she currently sees as the major demands in the market.

Development of mobile contactless technology has been difficult, with ideas and ways of best enabling the technology changing seemingly from month to month. Initially a contactless card was stuck onto the outside of the mobile handset, then the same chip moved inside the handset, and now payments are being integrated with the handset software itself. Duncan believes one of the main issues with mobile payments, especially contactless, has been how these changes are complicating the market for manufacturers and issuers.

“When we speak to our customers, prepaid is what they want on their mobile,” she said.

“It is different, people love their mobiles, but they are not comfortable yet putting credit or debit on their phones, they want to get used to it, they want to segment it and they want that control. Once we have the open platform it makes it much easier for anyone to enter that arena, and then that should be followed closely by person-to-person payments in the same manner.”

Innovations in the credit and debit market were also covered by Duncan, especially as a product recently launched by Visa attempts to combine credit, debit and prepaid.

“We’ve just launched a product called Simply One,” Duncan said. “This puts debit and credit on the same card, and this enables the consumer to choose how they want to pay at the point of purchase. Now we are in the middle of discussions with members to launch this as ‘prepaid plus’. What this means is that as a prepaid issuer you have the ability to start to integrate other payment applications in for the consumer at that point.”

New contactless prepaid initiatives are also being rolled out in Slovakia by Volksbank. Peter Szenkuroek, head of retail international, and Ivan Kubaš, division director of alternative sales channels, told delegates that Volksbank would be launching a prepaid contactless card for use on public transport in the city of Bratislava by the first quarter of 2010. Around 140,000 cards will be issued.

The bank will also be rolling out a prepaid programme to replace paper meal vouchers at the end of this year, representing the first card project of its kind in Central Europe. The cards will be for electronic use only, allowing online authorisations, for use in selected shops and restaurants.

It’s not just technological advances where prepaid is evolving – the solution is also being rolled out in emerging markets where payment cards have only been in existence for a few years. One of the most interesting presentations at this year’s conference was by Leena Abbas, head of the credit card department for the Trade Bank of Iraq (TBI).

She spoke about the challenges Iraq must address in terms of education and security before it can establish an electronic banking structure.

Despite the current situation in Iraq and the difficulties with establishing a stable infrastructure for economic activity, Abbas outlined what looked to be a particularly ambitious prepaid card project involving all the banks in Iraq, named Akadia, which is aimed at developing a multi-function Visa-branded prepaid programme for social benefit disbursements. The project is unique, not just in its setting but also because it is using fingerprint biometric authentication in addition to visual and PIN or signature authentication.

“The card has both a picture of the cardholder on the actual card and a record of their fingerprint on the card chip, which enables us to identify the user at either a workstation in the bank or one of our ATMs,” Abbas told delegates.

“The cost savings for the banks are significant; the costly and difficult process of customer registration is done only once, then customers can be identified reliably for all banking and other services. Project Akadia can become a huge factor in reviving Iraq’s economy and helping pave the way to real peace,” Abbas added.

The Summit’s delegates also heard about some new initiatives that are being rolled out into the wider European payment marketplace. Dominique Buysschaert, CEO of PayFair, which is positioning itself as a pan-European debit scheme to rival Visa and MasterCard, announced that PayFair would also be looking to move into the prepaid space.

Acceptance of PayFair has already been implemented in Belgium, having started at retailer Colruyt in October 2009, and Buysschaert added that “good progress with banks and retailers” has been made in Germany and France, with contacts established in the UK, Spain, the Netherlands, Italy and Poland.

PayFair is now moving into the prepaid space, with Buysschaert outlining a project being developed with a university to roll out a prepaid multi-application student card offering access control, contactless payment inside the university and external payment at merchant partners. According to Buysschaert, PayFair can offer multi-technology cards combined with low-cost instant issuance solutions without PCI (Payment Card Industry) hurdles.

Prepaid in difficult economic times

Moving to less well-established payment card markets, several speakers turned their attentions to how prepaid could act as a bridge between largely unbanked populations and consumer desire for greater purchasing power and efficiency.

Laura Kelly, senior vice-president of global prepaid solutions at MasterCard Worldwide, outlined how prepaid solutions could serve emerging consumer needs.

“A new consumer landscape is emerging,” she told delegates. “Indian consumers are topping consumer confidence surveys, Brazilian and Argentinean consumers are expected to lead Latin America’s economic recovery, and Middle Eastern consumers using the internet for social networking and online shopping have increased dramatically – now representing 5.2 percent of the world’s users.”

Looking at the Middle East, Kelly told delegates that although it is at an early stage of development, “there is tremendous potential for payroll and remittance combinations, and prepaid public sector and travel is another leading growth driver”. In the United Arab Emirates alone, prepaid gross dollar volume reached $0.7 billion in 2007 – by 2010, this is estimated to grow to $4.4 billion, and by 2015 to $18.4 billion.

Many in the industry have highlighted prepaid as an ideal consumer and corporate tool to control spending and cut costs, two themes which have become all the more important during the recent global economic turbulence. The keynote presentation of the Summit was given by Matt Lanford, head of prepaid in Europe at MasterCard Worldwide, who outlined how the economic situation had created a “golden opportunity for prepaid” to meet all stakeholder needs. However, he said, the challenge over the next year was for the industry to demonstrate that “prepaid is more than a recessionary phenomenon.”

Above all, Lanford stated, “prepaid offers the opportunity to diversify customer offerings to meet changing consumer demands, rejuvenate customer relationships and improve ‘stickiness’, differentiate from competitors, and harness valuable information about customers’ spending habits through the natural extension of existing product portfolios to include prepaid.” <

For more information on the event, please visit The Prepaid Cards Summit was kindly supported by MasterCard (Premier and Workshop sponsor), First Data (Gold sponsor), SIA-SSB (Gold sponsor), Visa (Gold sponsor), Accor Services (Silver sponsor), FIS (Silver sponsor), PayPal (conference bag branding), Ukash (badges and lanyards sponsor), BemroseBooth (exhibitor), International Business Wales (exhibitor), Stored Value Solutions (USB sponsor), Transact Network (lunch session sponsor), Citi (brand session sponsor), Epipoli (brand session sponsor), Laser (brand session sponsor), ecommlink (brand sponsor), Euronet Worldwide (brand sponsor), and the official research partner, TNS.

Mattia Adani

Fiona Duncan

John Yeomans

Lauren Kelly

Flavio Mastrangelo

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