A Guide to Achieving Greater Prepaid Volume: Six Channels That Drive Prepaid Success

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This report from Mercator Advisory Group, "A Guide to Achieving Greater Prepaid Volume: Six Channels That Drive Prepaid Success" delivers a in-depth analysis of six different channels utilized by the prepaid industry and then evaluates the impact each channel has on four different prepaid product segments: One Loop Gift Cards, Open Loop General Purpose Reloadable (GPR) cards, Closed Loop Retailer Gift Cards and Closed Loop Online Services prepaid cards typically used to deliver online music, games, and telecommunication services. The six channels evaluated include: 1) Issuer Indirect via Prepaid Mall Distribution; 2) Issuer Indirect through Non-competitive Retail Partners; 3) Issuer Direct via Web Site Distribution (to consumers); 4) Issuer Indirect via Direct Sales to Businesses (for incentives/rebates/gifts); 5) Issuer Indirect via Internet to Businesses (for incentives/rebates/gifts), and; 6) Issuers Indirect via Prepaid Internet Aggregators.

A Guide to Achieving Greater Prepaid Volume: Six Channels That Drive Prepaid Success

This report from Mercator Advisory Group, "A Guide to Achieving Greater Prepaid Volume: Six Channels That Drive Prepaid Success" delivers a in-depth analysis of six different channels utilized by the prepaid industry and then evaluates the impact each channel has on four different prepaid product segments: One Loop Gift Cards, Open Loop General Purpose Reloadable (GPR) cards, Closed Loop Retailer Gift Cards and Closed Loop Online Services prepaid cards typically used to deliver online music, games, and telecommunication services. The six channels evaluated include: 1) Issuer Indirect via Prepaid Mall Distribution; 2) Issuer Indirect through Non-competitive Retail Partners; 3) Issuer Direct via Web Site Distribution (to consumers); 4) Issuer Indirect via Direct Sales to Businesses (for incentives/rebates/gifts); 5) Issuer Indirect via Internet to Businesses (for incentives/rebates/gifts), and; 6) Issuers Indirect via Prepaid Internet Aggregators.

This research indicates that today the retail channel has proven instrumental in achieving high volume, as indicated by the fact that six of the ten fastest growing market segments have achieved their volume primarily through retail distribution. However it also finds that the number of cards sold through the internet has increased dramatically of late, but that some segments remain unable to leverage the internet channel for reasons explained in this report.

This report is the second in-depth look at prepaid card distribution models conducted by Tim Sloane, Director of the Prepaid Advisory Service for Mercator Advisory Group and the author of this report who states; "There have been several dramatic changes in the structure of prepaid channels and this report will help program managers of both open and closed loop products better plan their distribution strategies. It is amazing how sophisticated some program managers are in regards to their channel strategy while at the same time most others appear to lack any understanding of channel differentiation. For example, digital content providers typically demonstrate the most immature channel strategies, even as Apple clearly demonstrates that huge volumes are possible when you move digital content into the world of physical gift cards. This report also takes a special look at how consumers that purchase prepaid cards for budgeting purposes represent a huge challenge and opportunity to financial institutions that control the consumer's DDA account. While to date retail banks have not been hugely successful in prepaid, it appears a major opportunity is approaching."

Highlights of this report include:

  • Almost all prepaid products are delivered to market through only six different distribution models.
  • Today, the retail channel has proven instrumental in achieving high volume, as indicated by the fact that six of the ten fastest growing market segments have achieved their volume primarily through retail

distribution.

  • All prepaid program managers have an opportunity to tap into the consumer's use of prepaid as a budgeting tool, but the financial institutions that hold the consumer's DDA have the most too lose if they fail to claim the funds as a first-mover advantage.
  • Mercator Advisory Group expects Amazon's entry into the incentives market will apply significant pressure on the existing Prepaid Aggregator Model because Amazon's approach shortens the path to fulfillment for the incentive recipient while leveraging Amazon's shipping and consumer communications expertise.
  • Digital content providers, have the most immature channel strategies. With the notable exception of Apple, which has entered most distribution channels with its gift card, the other online music

and gaming web sites have generally failed to grasp the benefits associated with offering a
physical gift card.

  • While retail channels have dominated prepaid distribution through 2008, there are several

indicators that selling through the internet is finally starting to drive significant volume for some
prepaid categories - although not all.

  • The line between internet prepaid aggregators and incentive fulfillment house is very thin, with almost all online aggregators trying to play in both markets.

Members of Mercator Advisory Group have access to these reports as well as the upcoming research for the year ahead, presentations, analyst access and other membership benefits.

Please visit us online at http://www.mercatoradvisorygroup.com/.

For more information call Mercator Advisory Group's main line: 781-419-1700

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ROBERT MISASI
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