Phone Plus Prepaid: All Aboard!

Posted: 9/2003

All Aboard!
Stored Value Cards Gain Steam
By Tara Seals

The idea of the prepaid debit account is gaining steam and a number of big names are hopping on board.

Prepaid ATM cards, also known as stored value or prepaid cash cards, are used primarily by teenagers and the credit challenged. There also are people who simply dont want to buy goods on the Internet with anything linked to their checking account (as is the case with traditional debit cards). Theres also a market for prepaid gift cards, prepaid casino gambling cards, and some employers offer prepaid paycheck cards to workers without a bank account, in lieu of actual checks. According to research done by marketer Stored Value Inc., the total market for prepaid ATM cards is expected to grow by 338 percent, to almost $800 million by 2005.

Evidence of that growth is common. This summer PreCash Inc. announced a new relationship with Verizon Wireless. PreCash lets customers add any amount between $15 and $600 to their prepaid debit accounts, which are linked to rechargeable and reusable PreCash cards sold at participating locations nationwide. It particularly targets prepaid wireless phone users that can use the cards to replenish their accounts. PreCash has been adding steadily to its roster of service providers that allow users to pay with PreCash.

PreCash cards do not have a currency value, which makes it a less risky proposition to carry around. The PreCash process converts cash presented at a point-of-sale location into electronic currency, and loads that currency onto a customers storedvalue account.

Prepaid long distance exploded in 1993, and now the same thing is happening with prepaid wireless, says Matt Callanan, CTO at PreCash parent company PreNet. With prepaid cellular, wireless companies can offer wireless service to customers on a pay-as-you-go basis. As a result, carriers are increasing their customer base by including customers without access to credit cards, who have limited credit or who want to pay cash for services as they need it.

Similarly, teenagers and college kids can benefit from such prepaid debit options. Visa launched enhanced education initiatives in July that tie in with its Visa Buxx prepaid ATM cards, to help tap this market. Fiscal responsibility touch points in the education program include whether to pay by cash or check, when to pay bills, creating a spending plan and savings strategies.

Visa developed the Buxx prepaid card to help parents teach young people how to manage their money wisely through hands-on experience, says Rhonda Bentz, Visas director of public affairs. Along with their parents mentorship and practice managing money on a limited budget, teens can learn from financial education materials on the Visa Buxx Web site, including our Be Centsible financial literacy quiz. Prospective cardholders must first take the online financial literacy quiz on the Web site before their parents can apply. Once accepted, parents control the funds in the account, and can either add or withdraw money as they see fit. Cardholders and their parents can monitor all transactions anytime online or by phone, and monthly electronic statements are available for families to review and discuss.

Young people need to have a solid grasp on the responsibilities that come with financial independence, says Bentz. Parents who choose prepaid cards such as Visa Buxx are able to provide teens the crucial experience of living on a limited budget and being accountable for their fiscal decisions. Visa says it sees the trend toward prepaid cards continuing to grow, with the number of Visa Buxx cards issued steadily increasing from four to eight percent a month.

In early August, BanX Inc., a stored-value provider formed by Alvin C. Rice, former vice chairman of Bank of America, released BanXcard Maestro Card, a card that can be used as a debit card to pay for purchases, as an ATM card to withdraw cash worldwide and as a phone card. The BanXcard Maestro Card is issued by BANKFIRST, pursuant to a license from MasterCard International.

BanX says the card is designed for individuals without bank accounts, who wish to avoid high transaction fees by going to a BanXcard retailer and having cash or payroll check proceeds stored on the card. The cardholder, without delay, then can use the debit card feature to purchase goods, go to a nearby ATM and obtain needed cash, or make phone calls. The balance of the cardholders funds is stored safely and available for future withdrawals. BanXcard users are given two cards initially. A second family member could be given one of the cards and then easily access the funds internationally over the ATM networks.

The card is available from retail merchants, check cashing businesses, travel agencies and other locations. The merchant easily can load the card with money by using a swipe terminal. With the BanXcard, the user then can purchase goods at any merchant that accepts debit cards. There is no limit to the times the cardholder can reload his card.

BanXcard is available only in select markets in the United States, it eventually will be available nationwide.

Clearly a sign of industry health, 7-Eleven Inc. also plans on rolling out its own prepaid cash Convenience Card, to be used for paying lastminute bills like phone or utility payments. The retailer just signed a seven-year strategic alliance to offer round-the-clock in-person bill payment services with e-Money Systems Inc. at 7-Elevens Vcom electronic kiosks, in-store integrated financial kiosk that merges ATM capabilities with other services. The new service allows for paying multiple bills through a variety of payment methods, including cash, automated clearinghouse checking accounts, credit, ATM debit and the Convenience Cards.

7-Eleven created Vcom to provide consumers around-the-clock access to products and services not traditionally found in convenient locations, says Jay Giesen, 7-Elevens vice president and general manager of Vcom. With Vcom, billers can offer a convenient and efficient payment option to their cash customers who can pay bills at the last minute, perhaps avoiding discontinuation of services.