Because a number of our clients are interested in the pre-paid market, for one reason or another, I spend a lot of time looking at it how it is evolving across categories. And I agree with all of the analysis (from our good friends at Payments Systems Europe, for example, who were at Prepaid Cards in London on Monday) that predicts big growth in Europe. But is there some hype about prepaid cards?. I think it depends on the subsector. In the retail space, the evolution of the Starbucks pre-paid card (let’s call it the Starbucks purse, just for fun) would indicate not.
When the Starbucks purse first came out, I remember thinking it was an interesting experiment, but (not knowing anything about marketing) didn’t see why people would get one. Yet 16+ million of them did. And it didn’t take long before that Starbucks cards became the multi-function card Duetto (like this RBC Duetto Visa Card which is both an RBS Visa credit card and a reloadable Starbucks purse. Now there are lots of Duetto cards.
If we take the Bank One Duetto as an example, 70% of cardholders use the Stabrucks purse. Nearly 20% of the cardholders use automatic reload from the credit card to the purse. Note that the average amount that cardholders reload from the credit card to the purse is 40% higher than on standalone purses. But the critical statistic is that nearly two-thirds of cardholders say that their Duetto card is their primary card. For the bank it seems to be a good deal for top of wallet, trading debit or credit interchange on small transactions at Starbucks (which go to the purse) for the line of the credit funding the purse and interchange on larger transactions made with the primary card outside Starbucks. This is much the same business model as using a transport purse (such as the Suica purse on Visa cards in Japan, which is the primary card for the great majority of cardholders) to get top-of-wallet without massive marketing spend.
I’m sure that they will try to develop a similar winning strategy in other countries. And it may be hard for other retailers in the same space to go the same way, because it looks as if Starbucks have filed to patent the two-in-one prepaid and credit card!.
Oh, by the way, does anyone have one of those old MasterCards with the Mondex purse and the Mondex loyalty application loaded on it? Maybe one of the Burger King ones?