In this month’s guest article, Matthew Lanford, head of
prepaid at MasterCard Europe, gives his insight into the economic
and cultural forces that are shaping and transforming the prepaid
market, and how new industry dynamics are being influenced by
changing consumer behaviour and attitudes.
Regular CI readers will recall my overview analysis in last month’s
edition of the opportunities and challenges faced by the European
prepaid industry amid the global economic downturn.
I promised to follow this with more detailed considerations of the
forces conditioning the prepaid community’s evolving relationships
with its key stakeholders and offer perspectives on how these might
be managed best in the present business environment. The dynamics
behind the industry’s engagement with consumer end users,
themselves perhaps the most important stakeholder group of all,
provide a natural starting point for this assessment.
While some commentators now profess that the green shoots of
recovery are sprouting, it remains inescapable that the notional
‘man on the street’ is unlikely to feel significantly reassured
about the value and security of his personal wealth for some time
The impact of this uncertainty on consumer attitudes and behaviours
has already become tangible across Europe. Citizens are more
focused than perhaps ever before on the need to reduce their
everyday expenditure and scrutinise more closely their spending
The longevity of this impact is uncertain. More clear is the
opportunity this uncertainty brings to cement prepaid in the
consciousness of European consumers as the centrepiece of what we
might call ‘everyday money thinking.’
Tied to this discussion is the matter of considering how the
prepaid industry can ensure prepaid becomes used more widely at the
point of sale. Merchant support is integral to achieving this but
the strong track record of prepaid as a hotspot for payments
industry innovation means that our community must ensure that its
knowledge capital is exported in the most effective way possible to
the high street.
A new dawn of consumer austerity
Prepaid is inherently well equipped to match consumers’ shifting
needs and expectations amid an economic downturn. This view is
founded on more than just instinct, with independent research now
aligning the mindset of European consumers with the genealogical
strengths of the prepaid product.
One survey, conducted by TNS in March 2009 on behalf of MasterCard
Worldwide, forecasts the spawning of a generation of European
consumers focused on financial security and no longer disciples of
the boom time prophecy of forever burgeoning wealth.
The figures here are startling, with over 28 percent of 3,000
consumers questioned across six countries expecting their job to be
at risk before March 2010. Continuing on this theme, 58 percent of
respondents confirmed an expectation of being unable to save any
money during the year ahead.
Consumer habits were of course changing well before March 2009.
Rocketing food and fuel prices had undermined confidence while
rising inflation hijacked consumer efforts to slash
For many Europeans, taking advantage of the heavy discounting by
retailers during the Christmas period represented something of a
last spending hurrah before a battening down of the financial
Hence we now see the birth of a new generation of austere European
consumers. Focused on money management and planning, this more
financially self-disciplined community is proving quick to adapt to
the harsh new economic reality.
This trend is reflected by the rising proportion of consumers
participating in retailer loyalty programmes. Involvement here rose
nine percent to 67 percent between September 2008 and March 2009,
according to the aforementioned TNS survey.
Similar rises were also recorded in the consumer tendency to
collect offer coupons, search for bargains online, spread credit
payments and select card products with discount and reward schemes
attached to them.
Allied to this shifting consumer mindset is a notable rise in the
actual use of prepaid cards. Across Europe, 21 percent of those
surveyed said they were now paying for goods and services using
prepaid. This constituted a six percent increase compared with
September 2008. Italy emerged as a stand-out growth market with the
proportion of prepaid users up nine percent to 43 percent in
Catapulted into the consumer mainstream
These insights are illustrative of a far larger opportunity for
prepaid in Europe. They also reinforce my view that the current
global economic downturn is the catalyst for growth that the
prepaid industry has been waiting for.
The chief propeller of this change is what we can call prepaid’s
‘controlled flexibility’. This descriptor combines the control
prepaid offers consumers in managing the overall volume and
underlying patterns of their expenditure, with its inherent
versatility as a payments solution applicable in a broad range of
Prepaid is therefore able to satisfy a pan-European consumer demand
for control over transparency, acceptance, convenience and
security. These demands have been galvanised by the onset of
recession and underline the opportunity presented by the
macro-economic environment. The proven application of prepaid in
environments ranging from public transport networks to sports
stadia and newsagents evidences the flexibility descriptor.
This assessment of controlled flexibility thus suggests that
prepaid has the potential to drive notes and coins out of countless
aspects of the financial system. Indeed, it seems that the
versatility of prepaid’s application is bound only by the limits of
the collective imagination of the prepaid industry itself.
Repositioning prepaid and educating
With the opportunity presented by the global economic recession now
made clear, there is no logic in the prepaid industry remaining in
its shell and not sharing news of what it has to offer the
The synchronicity of the fundamental strength of prepaid and the
changing needs of Europe’s consumers are evident. There is no room
however for industry complacency as even in light of the above the
need for consumer education about prepaid remains.
The very mention of education may sound cliché to some readers, but
it remains my view that the prepaid industry in Europe has for too
long undersold the true potential of its product and has perhaps
not succeeded in terms of inspiring consumers to migrate to
prepaid, in addition to educating them about its uses and
Assessing European consumers’ existing knowledge of prepaid cards
and their associated benefits helps us to define the required
educative messages. A study conducted on behalf of MasterCard by
ase Market Research in May 2008 determined that consumers already
perceived prepaid cards as being beneficial in terms of universal
acceptance, security and as a means of transferring funds speedily
The report concluded also that while prepaid cards were still most
likely to be preferred by consumers concerned over their ability to
control the volume and pattern of their personal expenditure, they
were perceived to be on a par with credit cards in terms of their
look, feel and social acceptability.
This insight is important in that it suggests prepaid has already
enjoyed success in removing the traditional association with
The feeling among consumers is clear that prepaid cards should be
regarded as normal ‘adult’ products which create a feeling of
inclusiveness, offer prestige and do not broadcast financial
difficulties. The prepaid industry should convey with confidence
the message that prepaid is a product which offers something to all
and is already mainstream.
With the underbanked stigma apparently now removed, prepaid needs
also to crystallise its positioning in the minds of
A study conducted by BRMB and CI reveals that 58 percent of
consumers have reloaded a prepaid card at some time. Those in the
35 to 54 age group demonstrated the greatest propensity towards
reloading along with ABC1 social group consumers. Besides
reiterating the view that prepaid is now firmly in the consumer
mainstream, these findings further suggest a genuine opportunity to
explain what makes reloadable prepaid distinct from gifting to
Europe’s more affluent consumers.
The distinction from credit and debit, where the latter is linked
to a bank account, is also essential. For too long prepaid has
suffered from misconstrued and misinformed commentaries confusing
it with these products.
As an industry we must now seek to reposition prepaid as a
complement to established cards for the new wave of European
consumers seeking to exercise and maintain control over their
Reviewing once again the ase Market Research findings offers
further insights worthy of incorporation into the consumer
The survey found that 46 percent of consumers believed that
contactless technology enabling them to tap and go when making
small purchases remains a “very or somewhat important” feature of a
prepaid card. Profiling the success of such schemes among European
consumers is thus imperative now and in the future.
Parallel action should be taken in response to the ase survey
revelation that 64 percent of European consumers regard loyalty
discount schemes as again being a “very or somewhat important”
prepaid card feature. The recent launch of schemes such as the
Ryanair prepaid card exemplify prepaid’s ability to meet this need.
But all communications around such programmes should incorporate
the sharing of the fact and spreading the word that our industry is
addressing what consumers have told us they want.
From education to inspiration
Education alone will not embed prepaid in the collective
consciousness of European consumers. There is little or no value to
be derived from lauding the benefits and advantages of prepaid only
for everyday users to feel disappointed or frustrated by the actual
Cynics argue that a payment experience cannot, by definition, be
pleasurable. Nobody enjoys parting with their hard-earned wealth.
What is certain, however, is that repeated unpleasant experiences
at the point of sale reduce the future likelihood of consumers
reselecting the form of payment associated with that experience
while also driving them away from the merchant involved.
Ensuring a payment experience which inspires consumer loyalty to
prepaid demands consideration of the issues associated with two of
our industry bugbears. These are the top-up of cards and enabling
the partial redemption of single load cards at the point of
The easy top-up by consumers of prepaid cards is of course
intrinsic to future success. The industry is working from a strong
foundation in this respect as the previously cited BRMB and CI
figure citing consumer familiarity with the concept already being
Multiple benefits can also be derived by merchants as the
opportunity to use top-up price as a lever to drive footfall into
their stores has the potential to become a weapon in their own
customer acquisition and retention strategies.
This is why our industry in Europe needs to deliver a consistent
reload experience for consumers which ensures that funds are made
instantly available and flags and documents instantly any fee
incurred in relation to the transaction. Such benefits are already
readily available to consumers in the US. In Europe meanwhile, June
2009 saw further progress of MasterCard’s programme to launch
MasterCard rePower, a point of sale reload service, in the
Many dangers are posed to consumer relationships by transactions
declined in instances where the balance owed exceeds that remaining
on the prepaid card. Indeed, the potential for embarrassment to be
caused to the customer should in itself be enough to inspire
concern in the prepaid community.
Technologies employed at the point of sale in the US, for example,
vary in their ability to support partial authorisation, and the
cost burden of the system upgrades required to encompass issuers,
merchants and acquirers in a consistent system remains a point of
contention and debate. This serves to create more uncertainty from
the perspective of the consumer with the accompanying risk of
Resolution of this issue remains a work in progress. From this
author’s viewpoint, MasterCard remains committed to working with
both issuers and acquirers to ensure partial authorisations can be
applied at the point of sale. It can only be hoped for the benefit
of all stakeholders that a solution is agreed upon in Europe sooner
rather than later. Clearing away such barriers holds the key to
Broadening the church of consumer usage and becoming
Partial authorisation in the gifting segment is not the only
challenge to be addressed as prepaid seeks to gain everyday money
status among Europe’s new consumers. A study by Giftex Prepay in
November 2008 canvassed the opinions of more than 190 prepaid
professionals worldwide on typical challenges facing the
Featured among the findings were concerns that foreign exchange
cards would suffer as the discretionary travel spend category was
dropped by consumers during the downturn. Meanwhile, the growth of
prepaid cards as a means of facilitating international remittances
was perceived to be under threat, as migration flows decreased amid
reduced employment demand.
Alongside these issues remain some of the industry’s more perennial
challenges. These include the social and moral debates relating to
the use of prepaid cards as a means of payment among the young and
for such adult purposes as online gaming.
A willingness to meet these challenges head on, combined with
maintaining prepaid’s outstanding track record in payments
innovation, hold the key to success. Recent industry developments
suggest the industry is faring well in this respect, typified in
the travel segment by the launch of Travelex’s Cash Passport cards,
which are now available across the globe in ten currencies.
By allowing cardholders to lock-in on foreign exchange rates on a
secure, convenient and reloadable card, this product reflects the
versatility of prepaid products in the leisure and business spheres
of life; making it all the more attractive at a time when
international travel for all purposes may face a decline.
May 2009 also witnessed the launch of a UK product which seeks to
redefine the relationship of prepaid with the young. Young
Enterprise East of England, part of Young Enterprise, the
longest-established business and education charity in the UK,
launched its YCash scheme. Designed to promote prepaid as a method
of fostering sound money management skills among the young, YCash
further reflects prepaid’s versatility through the sharing of
profits generated from transactions between the charity and a
school nominated by the cardholder.
Solutions of this kind are serving now to help ensure prepaid
becomes ingrained in the consciousness of consumers now and in the
future and as such are the building blocks in the quest to become
accepted as everyday money.
Conclusion: act now or regret it later
Drawn together, the driving forces of a new breed of European
consumer for whom prudence has risen to the top of the agenda, an
existing groundswell of goodwill towards prepaid and the vested
interest of merchants in promoting prepaid as a point of sale
experience bode well for the future.
Consumers will continue to spend on everyday essentials whatever
the economic weather, even if only to survive rather than thrive,
and the right educative and inspirational messages will leave the
prepaid industry well placed to capitalise on the
The need to evolve the educational message as awareness grows and
to ensure that familiarity does not breed contempt will remain.
Further, no guarantee exists to say that the consumer agenda will
remain completely unchanged once the recovery comes. In a sense,
the key challenge is to ingrain prepaid in the collective consumer
consciousness now before the public is tempted by a new boom to
revert to using credit. But this is no different to any other
growing industry and something to be relished not feared.
The biggest potential pitfall thus lies ultimately in the
industry’s inability, or worse still unwillingness, to capitalise
on the opportunity which lies before it. Resisting temptation
towards inertia and showing the courage required to invest and
innovate to meet what consumers want in post-crunch Europe is what
will now open the door to what I believe will be the dawn of a
golden age for the prepaid industry.