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2011 Will Be A Watershed Year for Prepaid

By Ben Jackson
March 14, 2011
in Mercator Insights
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Returning from the Prepaid Expo, it seems clear to me that theindustry is more optimistic about the future of the prepaidbusiness. At the same time, the trends sweeping the industry arelikely to make themselves felt strongly this year. By 2012, theindustry is likely to have a very different shape.

On the closed-loop side, the influence of technology will changethe way that consumers shop and retailers market to them. The useof virtual cards is expanding at a steady rate. Social media, groupbuying, and tying offers to location based services will causeretailers to rethink their business models and engage withcustomers in new ways. In addition, consumer desire to avoid debtand retailer willingness to use reloadable cards may increase bothspending on closed-loop cards and reduce payment costs forretailers.

On the open-loop side, growth will be driven by the changingfinancial services landscape. As banks rethink what kind ofcustomers they want, and consumers battered by the financial crisisrethink where they want to buy financial services, the growth ofgeneral purpose, reloadable cards will increase. In addition,governments are moving from checks to cards as a way to distributebenefits. As more consumers are exposed to them and understandthem, the competition in this market will likely heat up. Issues inthe market include the ability to reload and making sure consumersunderstand how to use these cards.

Of course, all this growth is dependent on the economy. Whichdirection it goes will determine which way the market grows. Iexpect it will continue to grow, but the shape of the segments iswhat will vary.

The other unknown factor in all of this is regulations. Thegovernment could greatly affect the fortunes of the business bywhat regulations it imposes. Developing clear pictures of consumeruse and the industry as a whole, and educating the regulators willbe essential to keeping the industry healthy.

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