At the recent Prepaid Cards Summit, held in Rome in November 2009, VRL, publisher of Cards International, presented exclusive research on the awareness and usage of prepaid by UK and Italian consumers. Here, Victoria Conroy outlines some of the major findings and what they mean for prepaid players and consumers.
One of the key presentations of the 2009 Prepaid Cards Summit – held in November in Rome – came from VRL, publisher of Cards International, in conjunction with global market research firm TNS, which updated its groundbreaking 2008 research into prepaid awareness in the UK by widening 2009’s research to over 6,000 consumers in the UK and Italy.
In the UK and US, prepaid gift cards have driven the market – but in Italy it is government programmes and bank issuers that have led the way. It is important to recognise that different markets will have different lead products, and to analyse the level of banking fees in each market and whether prepaid works as a complementary product, or whether there is a business case to offer ‘stand-alone’ products.
Italian consumers are notoriously price-conscious and have a reputation for mis-trusting banks when it comes to bank fees, which tend to be higher than many European other countries.
Prepaid products are much cheaper when compared to traditional current accounts and credit cards. Whereas many Italian credit cards charge annual fees of between €30 ($43) and €40, and current accounts charge upwards of €10 per month, prepaid cards cost as little as €5 to purchase initially. This goes some way to explaining why prepaid has been so successful in Italy, as prepaid is viewed by Italian consumers as a much cheaper alternative to a bank account.
Awareness of the prepaid concept
Italy stands out as the most dynamic prepaid card market in Europe, thanks to a legacy of strong debit card usage and consumer familiarity with the prepaid model due to a high penetration of prepaid mobile phones.
More than 90 percent of mobile phone contracts in Italy are prepaid, so banks found it very easy to introduce a financial product using the same concept. What is interesting is that prepaid cards in Italy are popular with middle and upper class consumers, suggesting that prepaid cards hold no social class distinction.
Whereas 50 percent of UK consumers surveyed were aware of what prepaid cards were and how they worked, over 59 percent of Italians surveyed said they understood prepaid cards. Conversely, while 19 percent of Italians surveyed were not aware of prepaid, that figure rose to 33 percent among UK consumers – suggesting that issuers and payment networks in the UK still have an uphill job to do in terms of educating consumers.
The situation in the UK is markedly different, but awareness appears to improving. Last year, 10 percent of UK consumers were aware of prepaid cards but said they did not really understand how they worked.
This year, that figure has risen to 15 percent, indicating that advertising campaigns by programme managers and education initiatives are beginning to have an effect. But how would these figures change, particularly in the “not aware” category, if there was a major promotional push by the payment networks whose logos appear on the card?
What is interesting is that the 12 percent figure for those in the UK who have purchased a prepaid card is virtually unchanged from that of 2008, indicating that around 6 million people in the UK have purchased an open-loop prepaid card. This does not match up with the estimates of the number of prepaid cards that have been issued in the UK so far, which is around 1 million.
There appears to be a misunderstanding among UK consumers about what a prepaid card is, and also whether UK consumers are able to distinguish between prepaid and debit and credit cards. Also, it is possible that the concept of ‘free banking’ in the UK has limited demand for prepaid. Given that most UK current accounts do not charge annual, monthly, or per transaction fees, and that debit cards are perceived as being free by consumers, it would appear that demand for prepaid, at least for the time being, is mostly concentrated within the tiny unbanked and migrant worker segments.
A major finding is that half of the UK sample use prepaid cards for making internet purchases. The growing popularity of using prepaid cards for making online purchases is undoubtedly a good thing in terms of consumer uptake and awareness.
However, there is some question of whether prepaid usage on the internet is directly competing against online payment solutions such as PayPal and other e-wallet-type products.
In the UK, PayPal boasts 20 million accounts alone. The issue that this raises is whether e-wallet solutions are far easier for consumers to understand than prepaid cards.
In Italy, online spending has clearly helped the uptake of prepaid, assisted by other card products having limited acceptance online. But usage at retail locations for everyday purchases is undoubtedly a growing trend.
Travel and entertainment spending, both online and at physical locations, is a popular spending category for prepaid in Italy. Fears about online security are also helping the uptake of prepaid – people in some markets are still wary about using their credit and debit cards online. Prepaid offers a relatively risk-free alternative.
Reloading and fees
One key finding to come out of the research is that the sooner someone activates and uses their prepaid card, the more likely they are to reload it. Those who are more likely to activate and use the card are those who are educated about prepaid in the first place. They will also be more likely to use it regularly for a wider range of purposes – for the industry, that means greater transaction and purchase volume.
Getting consumers educated about prepaid is critically important and could be the defining factor between success and failure.
Many in the industry have tried to make the point that prepaid is not a single product or definition, but a solution that facilitates several varying applications that are used by varying groups of people.
It is important that marketing messages take into account regional or age differences in terms of how people use their prepaid card, but at the same time, solution providers should not base their marketing campaigns on rigid application definitions that restrict product take-up to a specific group of people.
For example, when we think of remittances, we think of migrant workers sending money to their families abroad. But remittances can also be parents transferring funds to their children who are away at university. Marketing messages need to be driven by actual usage of the card, by who is using the card and for what purpose.
What we can also gauge is that the high frequency of monthly loading in the UK could be attributed to people having their salaries or other income – such as social disbursements – deposited directly onto their card on a weekly basis, or they are transferring money from their bank accounts onto the card once they get paid.
This could suggest that these cards are being used regularly by people who regard the cards as an all-in-one transactional tool. If that is the case, then consumers are already displaying some degree of loyalty to the card, perhaps giving the prepaid provider an opportunity to deepen that relationship with the customer and cross-sell other services to them.
Regular usage of the card will provide a rich stream of transactional data for the provider, which they can then use to create tailored marketing messages or to better understand how the consumer views the card and how the provider can use that to their advantage.
When it comes to weekly or fortnightly loading, there could be many reasons – many temporary or casual cash-in-hand workers are paid on a weekly basis, and people who receive social benefits like unemployment benefits receive payment weekly or every two weeks.
People may be more hesitant or nervous about transferring large sums of money to the card in one go, and may prefer to load smaller sums more regularly. There may be concerns about security, or fears about overspending. Perhaps they view the card as more of a budgeting tool than a transactional tool. Again, providers need to pay close attention to how the card is being used and tailor their strategies accordingly.
Overall, users of prepaid cards do not perceive that they are paying a lot in monthly fees or charges to use their cards. It is possible this is a question of consumer education – or perhaps consumers perceive their prepaid cards to be cheaper when compared to traditional current accounts or other transaction methods.
Those that use and load a prepaid card regularly are more aware about the fees they incur, yet this doesn’t to discourage them from using the cards. Based on this, it seems that fees are not a key factor in stopping increased usage.
Consumers that use their cards less frequently tend to have a less informed understanding of the card fees. When this group of people is contrasted with more frequent users, who know about the fees and are not put off by them, there appears to be a case for prepaid providers to give more prominence to fee levels in their marketing and communication materials.
After all, no consumer likes to be ambushed by what they perceive to be hidden fees; if prepaid providers ensure that they are upfront and transparent about what they are charging, consumers will feel more informed and as a result, more comfortable with using the cards on a regular basis.
Gift card awareness
Where the UK and Italy really differ is that UK consumers are much more familiar with the gift card concept than their Italian counterparts.
UK retailers have long had their own closed-loop vouchers and gift cards in-store. This trend also explains why it is mostly younger consumers, both male and female, who are more aware about gift cards – as they have had more exposure to them than older consumers have, based on shopping habits.
What is interesting is that this high level of gift card awareness is not much different from gift card awareness in the US, where the cards have been in usage for far longer. Given that Europe tends to lag behind the US by between two to five years in terms of product uptake, UK awareness and usage should now be accelerating. However, it is still possible that many UK consumers are aware of the cards, but that usage levels are still much lower than projected.
The prospects for gift cards in Italy appear to be limited for the time being, as open-loop cards account for over 70 percent of all prepaid cards in Italy.
The main reasons for the lack of gift card traction in Italy is the fragmented nature of Italy’s retail market, where market shares are much more evenly spread out and there is an absence of a legacy of paper-based gift voucher programmes. Although some retailers such as Essalunga are rolling out gift cards, in Italy it would appear that there are not sufficient scale volumes to justify and sustain such programmes.
These findings raise some strategic questions for prepaid providers – should gift card retailers be looking to market more to existing prepaid card users? Existing prepaid users are obviously comfortable with the product so they should be a natural target for gift card providers. Why not leverage the marketing strengths of both and view them as complementary products to each other, rather than competing propositions?
In the UK there appears to be a strong group of mutual purchasers and receivers of gift cards. This would appear to support the view that word-of-mouth advertising is still one of the best ways to get consumers interested in the cards, and that consumers appreciate the flexibility and convenience of gift cards. It is up to the prepaid provider to make sure that the consumer experience is a positive one.