This year saw the third annual Visa Prepaid Middle Middle East conference and awards, hosted in Dubai. Bringing in attendees from all over the world, the event saw the industires leading experts discuss the changing nature of the prepaid market. CI reports from the event in the Middle East
The fifth annual pre-paid Middle East summit kicked off with a session chaired by Douglas Blakey, group editor of Timetric’s consumer finance titles and a panel consisting of Richard Bialek, Visa’s director of prepaid CEMEA, Sumit Tyagi Visa’s director of prepaid MENA and Allen Chilvert from Pricewaterhouse Cooper.
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After a brief introduction from Blakey, Bialek started the session off with a run-down of Visa’s insights into the prepaid market in the US, Canada, Europe and Latin America.
He said: "Let’s start with a couple of words on the US. First it’s big; it’s the largest market for prepaid in the world. Initially prepaid programs were launched by corporates looking to save costs, translate paper voucher programs for incentives and rebates and consumer funded programs through companies like Netspend, Greendot – innovative non-financial institutions.
"That drove a lot of growth until about 2008/2009 when the financial crisis hits and the government came onboard in a really big way to drive prepaid growth. Programs that were funding social security and other disbursement personal benefits really contributed strongly to the growth in the US from 2009 onward.
"If you look at the open loop programs, the US is maybe two thirds of the global volume, if you consider the total prepaid closed and open loop maybe it’s a little bit less but still the US is very much a key driver for trends globally."
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By GlobalDataAfter a rundown of the US prepaid market, Bialek moved on to Canada, comparing and contrasting the two markets.
"Roughly 40 % of the market is open loop in the US. In Canada it’s maybe 5%, the market is just beginning to develop.
"Right now in Canada, a lot of the focus is on regulation, not only AML and KYC, but interchange in general. I mentioned the US and the Durbin rule, Canada has got a very active regulatory environment when it comes to the interchange.
"With Europe there’s a lot of focus on interchange as well, the EU has put limits on the interchange of debit cards and that’s affecting the ability to generate revenue on prepaid cards as well. Two things that have happened recognising that; programs that have been easy to deploy and the gift cards incentive have come to market in Europe.
"In cases like the UK, you saw some migration from the US with companies like Blackhawk that developed gift card programs, gift cards mall displays that have taken off.
Bialek rounded off his insights into regional markets by mentioning Latin America and the opportunities offered by Brazil’s hosting of the world cup.
He said: "Brazil is going to be exciting place in just a couple of months with the world cup – we are pleased to be part of that. I hope some of you Visa clients take advantage of the Fifa sponsorship offers."
After a final comment on the innovative nature of the Brazilian market, Bialek ceded the floor to Tyagi for his expertise on the MENA region.
Tyagi said: "I’ve been attending the prepaid summit Middle East for the last four years as a delegate, and have been seeing the growth that has really taken off.
"Prepaid is a product that complements credit and debit. At the last count, Visa had around 5,300 prepaid programs across 60 countries and a lot of that growth has been because of the trends that you see."
Tyagi described some of the examples of trends in prepaid cards, ranging from youth cards, more popular now due to the growing buying power of youth in the MENA region.
He said: "We see a lot of digital products being distributed and youth focussed products where youths are buying music, buying online games. That really gives an opportunity for providing mobile or a virtual card.
"Then governments are really moving from paper to electronic disbursements. We see that in the UAE a lot where payroll has really taken off a government mandating these programs."
Before moving onto some growth figures, he added that while consumer products are dependent on consumer’s occasional needs, corporate travel cards and government disbursements can often be relied on for regular loads.
"In 2008, we had about 42m total volume cash and POS combined. As of today we have 71 programs in 24 countries in MENA, 3m prepaid cards with growth of 86% last year, 10+ product types in the region and more than 100+ active programs.
"In 2008 Visa numbers in MENA were way behind other geographies including the Indian sub-continent, Australia, South Africa; they were far ahead in terms of total volume that we see on visa prepaid cards. In the last two to three years, MENA has jumped from third to number one and the biggest prepaid volume generator for Visa in the Asia-Pacific, Europe and entire Africa region."
Next, Tyagi discussed the potential of travel in the MENA prepaid market, pointing out the expat population as largely untapped market for prepaid travel products.
"Just look at the expat population that are there in this region and airlines connecting the globe; it’s such a fertile ground for travel to take off. We did some research, and customers who were carrying cash were carrying about 50% of their money in cash. When we asked them what the risk factors were they mentioned it could be lost or stolen and could not be replaced. When we presented the travel card to them 4 out of 5 travellers said they would take up a prepaid travel card.
"We currently have global sponsorships with FIFA and at the Olympics where we can leverage our products with offers from these events. Also worth talking about is our sponsorship with the Dubai shopping festival where we have been working with the Dubai tourism authority for the last 17 years."
Session 2
In the second session of the debate, Cairo Amman Bank’s deputy general manager for banking and services, Rana Sunna, presented the audience with the application of prepaid within the context of humanitarian crisis.
The Jordanian bank has been the first to implement the IRIS recognition with IRIS scan into its system, mainly used at airport security. "The IRIS scan of our clients is linked to their accounts, ATMs and to their cards whereby identification is done through the IRIS scan. This has provided more efficiency and more security to the operations," Sunna says.
As Jordan has always received refugees either from Palestine or Iraq, or, most recently, from Syria, there has been, of course, a growing demand for financial services from this population.
According to Sunna, by December 2013, Syrian refugees amounted to 1.25m people, around 19% of the current population of Jordan. However, this is expected to increase to 1.4m – another 10/15% in 2014.
Sunna explains: "Our innovative response that formed our new service was to partner with humanitarian aid organisations and we managed to launch our CAB Pay card program through Visa reloadable prepaid cards. Of course this program has allowed quick, secure financial aid and it has helped alleviate part of the human suffering in these camps."
As a result of the bank’s proposal, the cards automated the financial distribution and increased efficiency and effectiveness.
"Mostly we were able to provide financial services to the un-banked refugees, we supported local businesses by increasing purchasing power and they were allowed access to a large network of branches across Jordan."
The following speaker was Ibrahim Ahmed, head of prepaid cards & electronic payments at Al Afardan Exchange. The organisation, which has recently entered the prepaid industry, is one of the largest money transfer companies in the UAE. He outlined the features of two main products, a closed loop product under the brand of e-money which is for payroll or WPS, and Travelez, a Visa prepaid reloadable card, launched in 2012.
"The closed loop payroll card is a fully compliant WPS solution, and as of today we have around 100,000 registered cards or accounts under this program," Ahmed says.
The other cards, launched in an open loop program and accepted globally, are Visa reloadable cards available in two currencies. "We have an AED card and a USD card, within that we have two options given to the customer – a standard and a premium card. The standard cards are available off the shelf, valued for one year and the premium cards are valued for three years from the date of issue."Also, to provide a secure alternative to cash, in June 2013 the group launched a non-reloadable gift card, the first travel money USD Visa card in the region.
The card, which has a maximum value of $1000, is usable online and at POS, but not at ATMs. "It is an ideal replacement to travellers’ cheques which as some of you may know in this part of the world is almost an obsolete product. We have also observed people prefer buying prepaid cards as they have a better control over spending, especially those who like to use it online due to the security threats that we all know about , preferring them to credit cards when buying online," Ahmed says.
However, Al Afardan Exchange has experienced a series of challenges during the launching process. For example, he says some of the challenges included understanding the ever-changing customer needs.
"By the time we started, we knew our customer needs, but as we all know, customers are savvy these days. We need to make sure our program is flexible enough to accommodate their needs."
Though mobile is highest in terms of penetration out of the total population in the world, Ahmed says travel and payroll are the two growing segments.
He concludes his intervention: "Although I would say that payroll is saturated here in the UAE – still, it is a very important market. We also believe that having such cards also will enable an alternative to traditional P2P money transfers."
Continuing the discussion on the gift prepaid card segment, Tanvir Shah, head of partnership and retail banking at Abu Dhabi Islamic Bank (ADIB), focused on the frictionless commerce value of prepaid transactions.
Shah: "The merchant wants to enable the customer to transact at all his outlets with one single payment device. Universal acceptance is ideally provided by a network; you can have a domestic network that could provide domestic acceptance, but we prefer to have an international acceptance as we have tied up with landmark group which is across 18 countries including 600 outlets in the MENA region."
Shah explains that, compared to other types of cards, gift cards are experiencing three times more purchases by the same person. He adds: "A card probably brings a lot of safety and convenience and therefore, trust."
Also, Shah says giving ADIB’s gift card to the under 18 age bracket could probably cut through the age gap the bank has with other payment products.
The last presentation was from Ashraf Gamal El Din, executive chairman of the Egyptian National Post Organisation. He talked about prepaid cards and the role they can play in financial inclusion. The group, which provides financial services to low-income families and for over 12m customers, started issuing prepaid cards in December 2013. Gamal says: "Our objective was to deliver financial services at affordable cost to people who are usually non-bankable."
However, the Egypt Post also wants to attract a new customer base. "Egypt Post is known to be the bank of the poor, but there is so little cross selling you can make to these people who just come for small financial transactions. That’s why we thought part of the segment we are targeting is the youth in different places even from rich families.
He concludes: "We want to be a role model in how to connect different things using the card and how to make it loadable with more services and value for the customers of the country."
Session 3
Harshvardhan Singh started the session with a run down of models of prepaid cards in the region: "Let’s start with the general purpose reloadable card. Now this is a card which a customer takes with a minimal know your customer (KYC) requirement. The customer has multiple points of loading this card, and the customer can continue to use and reload this card.
"In this card, the main revenue drivers are card usage and forex. So the trick is to ensure that there is as much usage as possible taking place, and how much of that can you make to an international usage.
"Another model is the gift card. The gift card is non KYC, it is more like an fast moving consumer good (FMCG) product. The customer pays the money and takes the card with a fixed load, it can not be re-loaded. Because of being fixed load, this card has limited revenue sources for a bank. The revenue drivers have to be fee and breakage.
"Breakage is where the customer takes a AED100 card and uses it for AED96 and leaves AED4.
"The other business model we can discuss is the Forex card. The main revenue driver for a Forex card is the Forex. This is because compared to the investment of complexity, investment of the organisational initiative that goes in to a Forex card, regular card usage will not be able to make the card break-even or make money."
Pausing to mention the innumerable varieties of prepaid card, Singh continued: "The other significant one is the payroll card. The payroll card is a business that a lot of banks entered in to but have now gotten out of because a payroll card is a difficult business with which to make money in.
"Because you are targeting the under-banked – the real mass customer – there is only so much usage that can be driven. The revenue driver is cross-selling.
"Will we see prepaid become a leader? Will prepaid overtake everything else – credit and debit cards? That looks unlikely, but there is the potential for prepaid to become an actual business vertical.
"Prepaid as a business is still in the experimental phase for a lot of organisations – banks, financial institutions and retailers."
Singh then handed onto Bernado Nicoletti, who discussed innovation in prepaid cards and where cards companies should look for growth.
"The world is changing, it is becoming virtual. So what is the next de-physicalisation? The next one will be cards. It is obvious – it must be.
"We know that there is huge investment in terms of infrastructure today for the existing POS, ATM and so on, so it will take time. Having said that now is the moment to reap the benefits of this innovation."
Nicoletti added that real-time payments and a demand for instant gratification would also contribute to the virtualisation of cards, as would convergence. He then moved onto talking about the technology that has allowed card payments to become virtual:
"NFC enabled phones are also growing. In Italy, we are expecting that one quarter of smartphones will be NFC enabled. More and more manufacturers are launching them. A couple of months ago, even Apple deposited a patent for an NFC enabled phone.
"In my opinion mobile payments are a disruptive innovation. On the same device you can make payments, coupons, loyalty cards, you can have a customised promotion or location based promotion. These kinds of opportunities are extremely interesting.
"Opportunities are essentially with young people as they are ‘fond’ of their mobile phones, but they also lie with the un-banked and under-banked.
"The forecast is as I mentioned before that contactless devices will increase especially for financial services; you can see that the growth is around 54% (between 2012-2013) in smart secure contactless devices.
"For the time being, no clear technology is winning, on this aspect the payment acceptance remains underdeveloped. This is the main problem, as I mentioned before especially in terms of infrastructure it will take time."
In the future, Nicoletto foresaw "integration", "mass private banking" and "mobilise" becoming the buzzwords where payments are concerned.
Malik then took the floor, to talk about prepaid at NBAD, which prides itself on being ranked as one of the safest banks in the Middle East and having stable ratings.
"We are not new to the business of cards; our ‘cards centre’ has been present for over 20 years now. We have a large card product suite; ranging from credit cards to debit cards.
"We also have over 1m cards in the UAE within the prepaid category. We have various categories we have tried to cover in our simplistic way and cater to the various needs of the varying sectors that we have.
"For the consumer we have the general purpose, internet only card, our loyalty card which we have recently launched and a student prepaid card.
"We have a co-brand partnership with GEMS education, which is the largest education provider within the UAE with over 35 schools and a student base of over 90,000 students with access to around 60,000 parents."
Malik then moved onto the corporate prepaid card:
"On the business side, we offer customer gift cards for the corporates who we deal with who wish to provide gifts to clientele. We also have our payroll card, Ratibi Payroll card. In terms of government services, we have got our E-Dirham card."
"We have purchase/expense cards for employees’ day-to-day expenses. We also have employee and client incentive cards, for example the Abu Dhabi transport card, where taxi drivers earn incentives that are placed on this prepaid card."
"Our NBAD Stars card was the regions first loyalty card. Previously we had physical vouchers for redeeming accumulated Stars that were couriered to the customer and redeemed at selected merchants.
"This process was time consuming, as well as being limited in the number of merchants at which they could be redeemed. We came up with the Stars Loyalty Visa Card, where however many stars the customer has earned can be redeemed wherever Visa is accepted.
"We also have the E-Dirham Generation 2 card. It was launched in partnership with ministry of finance and its key purpose is to facilitate the collection of government and non-government service fees."
"What’s in it for the end user? That is a critical question. Again, these are thoughts from a consumer point of view – why is it attractive for them to come in to this industry?
"We believe there are three very simple elements. Number one, the convenience of getting it; secondly money management; the third element is security."
David Parker: Thank you very much, much appreciated. I’d like to ask the director of prepaid products from Russia, Dennis Kononets to speak.
Dennis Kononets: Good afternoon ladies and gentlemen, thank you very much for your patience today. My name is Dennis Kononets, I am working for Visa in Russia and my mission is to help Russian and CIS country issuers to launch and structure prepaid products.
For the sake of time I would like to share with you three slides which may give you a flavour of how prepaid is developing in Russia and the CIS countries. I would like to talk about the market landscape, the successful prepaid strategies and stories and provide some information on the existing trends.
Firstly, I’d like to say that cash is still the king of the market. Cash is still hugely used in many economy sectors, either for every day spends or for funding e-wallets and e-money for online spend. If we are discussing the card world, I’d have to say that debit cards dominate, mostly driven by Russian specifics because nearly all salary cards in Russia are debit cards not prepaid. Another thing I need to emphasise is that the Russian economy, and specifically the Russian market economy, is relatively young and the card industry is also relatively young.
The first payment card was issued in Russia in 1993, with the real market economy beginning in 1991. During this short period of time, Russia has jumped from an old fashioned communist styled economy to the fast growing and developing market which is full of innovative payment solutions including prepaid cards now.
Cards are heavily used for cash withdrawals, up to 93-95%, however the percentage of cards used for cash withdrawals is diminishing.
The uniqueness of the markets is that there are some innovative companies that explore its cash dominancy like QIWI, Cyberplat, Yandex Money, Rapida etc, they created infrastructure that allows people with cash to make payments through self service kiosks. With regards to QIWI in Russia, there are more than 150,000 kiosks all over the Russian territory.
Another trend is that closed loop branded solutions are quite popular and it’s becoming a trend to shift from this solution to an open loop payment solution. In recent times, internet penetration has been growing and there is a huge demand for e-commerce. This, in turn, has driven the development of the first prepaid card in Russia.
The first prepaid card in Russia was issued in 2009. Since the launch, the category has grown tremendously in the Russian market. Another specific characteristic of Russia is it is a very large territory. In some places, there is a lack of choice in terms of payment solutions, card choices and fears to use debit and credit for eCommerce.
An interesting trend is that non-traditional players in the payment industry including Telcos, Airlines, Post office, mobile retail, wallet operators, travel agencies, insurance, and corporations are looking at ways to grow and maintain relationships with consumers. They consider prepaid as a possible effective solution to build relationships and payment techniques between themselves and their consumers.
Card acceptance is growing fast, at the moment I would say it was between medium and high growth, improving every day with the
Russia is not particularly unique in developing successful prepaid strategies.
The main target is to meet consumer expectation and payment needs as well as follow standard consumer behaviour. Develop effective distribution network and reloadable techniques and options. Target both banked and un-banked; Virtual prepaid accounts with e-Wallets, MNOs and Banks are quite popular in Russia. In Ukraine for example we can see companion virtual prepaid accounts which provide more security to bank consumers just through providing additional payment instruments.
Self-service kiosks, ATMs with cash-in, online top ups are all available. Some companies are working on developing POS card reload services, KYC modules and applications. Mobile operators want to add openloop payment capabilities to their consumers linking Visa prepaid accounts, openloop prepaid accounts to subscribers accounts.
A trend we’re likely to see in the near future is the use of mobile application for payments, NFC as next generation POS payment techniques. Some banks are considering this technology as the next generation technology for banking.
Overall, I want to say that the whole world is getting smaller; the whole world is getting faster and prepaid definitely keeps pace with this trend. Prepaid minimises the boundaries between financial institutions and consumer by providing fast and convenient access to payment services available on many devices.
Trends we see; virtual and general purpose reloadable cards dominate the gift and corporate incentive cards. Emerging prepaid categories include travel, salary and insurance cards. The majority of prepaid cards are consumer funded, however we see a trend of corporations and companies are also looking for prepaid based solutions, so we predict there will be a growth in corporate funded programs. I need to also add that legislation for prepaid in Russia is also moving in a positive direction.
It is relatively new – the first regulation with regards to prepaid in Russia was adopted in 2012 with the introduction of a national payments system law which regulates prepaid and electronic money and includes KYC requirements, sets spend limits to anonymous and KYC prepaid cards, which tremendously improves the overall atmosphere around prepaid cards. It also improves the attitude to prepaid products; not only from consumers but also from traditional issuers including banks.
Driven by virtual card dominancy we see that domestic and cross-border PV ratio is approximately 55-45% powered by online spending. We also see 40% year-to-year growth for prepaid programs. The number of prepaid programs is growing rapidly providing up to 80% of total prepaid growth in Russia. That’s all, thank you very much for your attention.
David Parker: That brings us towards our close. I think we have just one more presentation.
Praga Govender: I joined Visa a year back now, and when I joined I started focussing my research on finding the biggest opportunities in prepaid for Africa? Almost everyone told me, including research, papers and consultants that it was general purpose. This just did not make sense to me because if I had $10, right, why would I spend $2 to buy a card and then put $8 on the card?
That’s why I’ve spent the past 12 months on a plane; visiting 12 different countries launching 20 different programs. The African market, particularly South Africa, was predominantly only gift cards. It has only been over the past two years that you have seen different segments evolve here.
These are some of the programs that I want to share with you today. Taking a highly consultative approach with each of the banks in each country, we have launched these programs over the past year.
An example is our Naivas loyalty card launch in Kenya. Here they did a loyalty program with Naivas supermarket, reaching 100,000 cards within the first two months of launch; they were highly successful in their loyalty program.
The second example is Botswana Life, where they put their rewards program and their life claims on to one card. Next is a travel program in Ghana; the unique part about this program is that a program manager went and engaged with the Forex bureau (one central bureau) who manages 250 Forex outlets and they signed up a global travel wallet which is now a disbursement mechanism of choice.
What they are doing with most travel cards is not changing consumer behaviour. Next I am very proud to say we launched a Visa mobile prepaid product in Botswana with Orange Money, which was a worlds first in that you have seen a lot of mobile wallets before, but what we did was take a prepaid card and linked it to that wallet so you have an open loop Visa card that gives you access to that wallet and is synced with it. It is doing exceptionally well.
The next phase of this, since you have interoperable mobile solutions, is to make interoperable between mobile wallets. If you have other programs being deployed across Africa and you have test programs you want that to be interoperable as well.
A final example is a reloadable general purpose card, South African program, where you can buy the card off the shelf and use it as a general purpose card. We are going to start activating e-commerce on it after our trial. They have done significantly well over the last three months with over 10000 cards and $1m spent per month on that.
Key learning’s from developing prepaid cards includes to taking a highly comprehensive and consultative approach. Find a need – you don’t need to do everything. If you fail to find a need then do not enter prepaid. It works particularly well when you are substituting a cash flow.
Secondly it is important to focus on a value proposition; what value are you going to add? Like most people working for a corporate you go to work every day and it is about the value you add to the company, prepaid is about the value you add to the cardholders lives. Thirdly, a key success driver is capitalising on new partnership models. Almost all the programs that I showed earlier involve new partnerships that we had never dealt with. The Visa Mobile prepaid dealt with Telco’s, Reload deals with a retail network and the travel card dealt with Forex bureaus. So find a niche, find a good partner to work within a completely collaborative relationship and you can make that program work.
The last driver is targeting new payment sectors. The opportunity in the UAE and Middle East is heavily focussed on payroll, but with the examples I mentioned ours was entirely gift, and we opened up a whole lot of product segments that are highly specific and making significant revenue for our clients.
