Will Cashless Payments Cause Us to Spend More?

Contactless payment is widely regarded by many as the future of payments. Many believe that technology such as the Card Case app or Apple Pay will start to dominate the payments world as they are easy and fast forms of payments. In some cases you may not even need a wallet anymore.

Businesses are looking increasingly at giving customers the easiest possible experience in terms of their consumer journey. They want to make sure that at the end of the journey the customer doesn’t have to struggle to part with their hard earned money by waiting in long queues or wondering which credit card has the most on. Many believe it is in the best interests of the customer to be able to swipe something quickly and walk out with your new purchase. However, as easy and convenient as it is, could it mean increased spending for us on a day to day basis?

New research has shown that many people, especially the millennial generation, find that paying with cash is an easier way to not spend as much money. Personally, as someone who is fresh out of University, with student debts and an apartment in a foreign country, I am trying very hard to make every dollar count. This means taking out a certain amount of money in cash at the start of each week and saying to myself, I will spend this much and no more. It is a very simple budgeting technique used by many; however contactless payment threatens it. Waving a phone over a scanner or quickly swiping a card, to me and I’m sure to many others, does not really feel like you are parting with money as it does with cash.

More convenient payment systems will mean even if you have no cash, a consumer will simply spend little bits here and there, especially with credit. Obviously internet statements are a good way of keeping track every now and again but that will not stop when you want that desert at a restaurant instead of having a cash limit.

So much of the excitement surrounding the rise of contactless payments is focused on how much it is for the customer without looking so closely about the benefits for businesses. An interesting development for me would be a form of inbuilt budgeting system within the app or form of payment. As contactless payment develops, as does the internet of things, meaning more interconnection. This could mean a weekly budget for those millennials trying hard to make the pennies count that is on a payment app which is connected to a calendar which may warn of upcoming events that could stop you getting that pair of jeans that may not strictly be necessary. In a world where businesses need to increasingly think about the consumer’s experience, helping them with little things like that could ultimately mean the difference between gaining or losing a customer.

About the Author: Harry Kempe, a marketing intern at IIR USA, who works on various aspects of the industry including social media, marketing analysis and media. He is a recent graduate of Newcastle University who previously worked for EMAP Ltd. and WGSN as a marketing assistant on events such as the World Architecture Festival, World Retail Congress and Global Fashion Awards. He can be reached at hkempe@IIRUSA.com

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Prepaid Expo Evolves… into All Payments Expo (APEX)

The longest-running event in prepaid is unveiling a new name and evolved mission: All Payments Expo (APEX), the NEW home for Prepaid Expo attendees, plans to stimulate cross pollination between prepaid and new and alternative players who are innovating payments, gifting and omni-channel retail strategies. The mission: catalyze the partnerships that are necessary to build the next generation of innovative payments, from the mobile environment to the brick-and-mortar POS.

Since the Expo’s beginnings nearly a decade ago, prepaid has pushed the boundaries of what payments can do – and in the process, evolved way past simple stored value. It’s been an exciting journey to see prepaid move from the fringes to the mainstream, thanks to the growing sophistication of gifting, payroll and GPR.

And as technology has fueled innovation in financial services and retail, prepaid’s flexibility has lent itself as a building block for new innovations, including hybrid products, social gamification, PFM platforms, cash infusions in the mobile wallet, and more. GPR has evolved into alternative financial services; gifting has blossomed as an integral part of Omnichannel retail strategy; and emerging payments are, naturally, impacting the entire ecosystem.

 As technology advances, margins tighten and competition heats up, the prepaid business is changing, and All Payments Expo (APEX) will be focused on helping attendees map the evolution of their businesses. Our loyal attendees will be able to meet with their existing partners, customers and clients – but there will be a lot of new faces, and new potential partners, too.

Here’s a snapshot of how Prepaid Expo has evolved: And a window into how the industry has changed, too.

  

  Prepaid, you’ve come so far… 

2006: 1st Prepaid Expo in Orlando Focuses: Unbanked, Underserved, Payroll 

2014: (APEX) All Payments Expo in Las Vegas 
Focuses: Alternative Financial Services, Omnichannel Retail Strategy, Emerging Payments, Prepaid, Gifting, PFM, Healthcare Reform, Cash-Based Innovations, mPOS, Future of Interchange, Gamification, APIs, Loyalty, the Wallet and MORE.

If you’re in prepaid, your business is changing rapidly. So too, is the longest-running event built for the prepaid industry. See you in Vegas!

And by the way – we are already building out our agenda and speaker faculty for the 2014 event. If you’d like to get involved or speak, please contact Diana Middleton at dmiddleton@iirusa.com.

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Will credit card trends of 2011 apply to general purpose prepaid cards in 2012?

The year 2011 was nothing less than a roller coaster for the payments industry, which saw a lot of changes and new initiatives. Some notable developments were the Durbin Amendment, creation of CFPB, NFC initiatives from the likes of Google, Visa, Verizon, AT&T and others, a slew of mobile apps for payments and digital wallets, Square’s dongle taking off and several others following suit, an increase in credit card spending and a fall in delinquencies. 

From amongst these developments, MyBankTracker^TM identified five key trends in credit cards. 

Let us look at these trends and see if they will spill over into the world of prepaid cards, which had a growth story of its own in 2011 (Eight Annual Prepaid Forecast Report from Mercator):

Credit Card Trend 5: Mobile Rewards Redemption

As mobile banking applications evolve to offer the same capabilities as the online account interfaces, rewards redemption is making its way to smartphones.

Discover upgraded its mobile apps so that customers can redeem their cash back balance through direct deposit, statement credit, or eCertificates. An eCertificate is an electronic gift code that can instantly be used to make purchases at participating brand partners.

Citibank released an app dedicated to its ThankYou Rewards program which lets customers redeem reward points on-the-go. In collaboration with Best Buy, the app allows users to scan merchandise with their phones to see the cost in terms of points. Purchased items can be picked up at the store or shipped to an address.

Will this trend spill over into prepaid cards?

Historically, prepaid cards have not been associated with rewards and loyalty, let alone rewards redemption through mobile phones. This is because prepaid cards were considered to be for the unbanked and less credit worthy customers. Those who needed them bought them despite heavy fees and the card issuing companies did not feel a need to attract customers with rewards. None of the top five prepaid cards advertised at prepaid101.com have rewards associated with them; only two of top 10 have some kind of rewards. 

But a lot has changed in the last few years: people are avoiding credit to stay credit worthy, debit fees have risen significantly and revenue from debit (interchange) has been capped at about half of what they had been. Traditional credit card issuers such as American Express, Citi Bank and Discover have jumped into prepaid cards to acquire new customers and revenue streams, intensifying the competition in this field and creating a need for some kind of incentive to retain the customer. Also, now prepaid cards are being issued to the non-needy customer (budget planner, traveler, debit fee avoider) who needs a little more than the immediate tangible benefits of the card to be attracted to a prepaid card offer. 

For the prepaid card issuing companies and retailers, getting customer behavior data from rewards and redemption can be very useful in selling them the right kind of products as well.

Rewards redemption through mobile is more effective because many customers have their phone with them always and the devices are location aware, making rewards more targeted and redemption more feasible.

So, yes, we will see rewards being generally offered with prepaid cards and also see mobile apps for rewards redemption.

Credit Card Trend 4: No preset spending limit

The invention of the “no preset spending limit” feature is being highlighted as a so-called “perk” that may actually pose danger to the consumer.

Many cash back/rewards credit cards will offer this feature to customers who have better credit histories. Examples include Bank of America’s BankAmericard Cash Rewards card and Citi’s ThankYou cards.

It lets customers spend past their assigned credit lines without incurring over-the-limit fees. Consumer advocates warn against the allure of “no preset spending limit” due to the increased possibility of overspending.

Will this trend spill over into prepaid cards?

Prepaid cards by definition can spend only the funds that have been added to them. So this trend does not apply to prepaid cards.

Credit Card Trend 3: No Foreign Transaction Fees

The average credit card will charge a 2-3% fee on purchases made outside of the United States. For the frequent international traveler, this foreign transaction fee can represent a significant expense. But, many card issuers are tossing out this fee on certain cards.

In November, Discover stopped charging foreign transaction fees on all of its cards – like Capital One. Citi, American Express, and Chase have eliminated foreign transaction fees on their more prestigious cards.

It wouldn’t be surprising to see less of this fee, especially on cards for frequent international travelers.

Will this trend spill over into prepaid cards?

A per event fee is the main source of revenue from prepaid cards and a foreign transaction is too attractive an event for the card issuers and processors to not charge the fee. So, no, this trend will not carry over to mainstream prepaid cards.

Credit Card Trend 2: EMV

Throughout the year, the five biggest U.S. banks have begun issuing credit cards that carry EMV chip technology. The cards are currently only available to corporate and more affluent customers but the technology will be making its way to every U.S. credit card.

EMV chips are regarded as a more secure way to process transaction data compared to magnetic strips. It has also become the standard in many foreign nations due to rampant card fraud. The U.S. has been considered a laggard in adopting EMV.

In August, Visa announced plans that give merchants an incentive to accept EMV cards by October 2015.

Will this trend spill over into prepaid cards?

The key driver behind EMV is fraud reduction. Prepaid cards are a more likely candidate for misuse and fraud because they are offered to anonymous customers or to identifiable customers without any credit checks. The target customers for prepaid are more likely to use public, unsecure networks and lose their card information to fraudsters, who can use the information to recreate and misuse the card. Or a financial criminal might buy a prepaid card with the intention of committing a fraud. EMV technology makes duplicating cards difficult and also makes offline and card not present transactions more secure. 

In addition, EMV based prepaid cards for use in retail or in transit offer a strong business case for issuers as discussed in an Aconite White Paper.    

For these reasons, main stream general purpose reloadable prepaid cards are likely to adopt EMV technology in the very near future.

Credit Card Trend 1: Mobile Payment Functionality

Taking center stage is mobile payments. Consumers who’ve been quickly adapting to financial management on their mobile devices are eagerly awaiting the day they don’t need to carry a credit card to use it.

Google Wallet launched with Citi MasterCard customers using near-field communications technology for contactless payments.

ISIS, a joint venture by the nation’s largest mobile carriers, has locked in major phone manufacturers and major payment processors that will begin promoting NFC technology on mobile devices in early 2012.

Apple is yet to mention NFC for the iPhone but the technology was on the wish list for consumers who waited to purchase the recently released 4S model.

Will this trend spill over into prepaid cards?

The most notable NFC mobile payment initiative in 2011 was Google Wallet and the cards that currently can be provisioned on the phone are Citi® MasterCard®, the Google Prepaid Card or Store gift cards from participating merchants. It’s not hard to notice that the scale is tilted in favor of prepaid cards already as far as Google Wallet is concerned. The biggest problem (not technology related) is that credit card issuers/banks, network operators and mobile wallet providers are all fighting over who owns the mobile wallet customer and who bags the proceeds from the card use. An unintentional fall-out of this situation will be that mobile wallet providers (Google or ISIS) will issue their own prepaid cards to be provisioned on NFC phones.

So, yes, this trend is very likely to carry over to prepaid; in fact, I believe that prepaid cards will lead this trend. 

About the Author

Manish Gupta is a Marketing Product Manager at 

CoreCard Software Inc. 

CoreCard Software is a leading provider of card management systems for prepaid, revolving credit, complex accounts receivable, payday loans, fleet cards and more. CoreCard provides a feature-rich and flexible platform for all prepaid programs, either as licensed software or processing services (SaaS or PaaS).  For more information visit www.corecard.com or stop by  CoreCard at Prepaid Expo 2012, booth #622. 

   

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