No one questions their soaring popularity. Maynard, Mass.-based Mercator Advisory Group, for instance, has estimated that by 2016 the amount of money added to prepaid plastic card will soar to nearly $685 billion, a 50% increase over 2011. Still, the decision of whether or not to get into financial services must go deeper than that.
“It’s one of those things, if you don’t do it you get left behind,” said Tom Pirko, president of BEVMARK LLC, a retail consultancy based in Buellton, Calif. “The premise that underlies the convenience store business is the ability to get people in and out of the stores quickly and to offer them the things that make their lives easier. Prepaid cards are in essence convenience items. So, as a convenience store operator, would you rather handle these items and enhance your convenience factor or have the sales go to Walmart?”
Ben Jackson, senior analyst for Mercator, suggested that retailers must decide whether or not financial services are part of their mission and, if so, to bolster it with prepaid cards.
“If a c-store operator has a lot of financial services business coming in by acting as a bill payment center and they are just selling prepaid cards off of a J-hook, then they’re not going to want to promote cards too much because it’s a strategic conflict,” Jackson noted. “But if their longer-term strategy is to build card-based services then they really need to make an effort create an environment where employees are well trained and customers are educated about the many uses of the cards and how to load money on them quickly to maintain the convenience element.”
Those operators might find it profitable to join a reload network, such as Western Union, Green Dot or MoneyGram, Jackson said. “When they become the anchor point for that card relationship they can drive more foot traffic and potentially increase sales of those cards.”
For those c-stores that develop a strategy around financial service, it can be a strong profit driver. “But for those who say, ‘You know what, it’s another product like anything else that I sell,’ it’s going to be very ordinary and never realize its full potential.”
The market being served by a given location will dictate how operators should proceed. “If I’m operating a c-store at a travel center on a main highway, then I probably have less of a need to sell financial services,” Jackson said. “But if I’m operating in a neighborhood where there are lots of customers from diverse economic backgrounds, then it becomes more important for me to become a financial services provider because I really am providing convenience of a different kind at that point.”
Knowing the customer is key. “This category is often thought of as a service for the underbanked, or code for lower-income consumers. But that isn’t always the case,” Jackson said “Sometimes it’s people who think, ‘I need to pay a bill right now because for whatever reason I didn’t get a notification.’ Or, ‘I was traveling and the electricity is going to be shut off if I don’t pay it right away.’ Or, ‘I need to send money to somebody right away.’ It becomes very much a convenience model that extends beyond just goods and into services.”
Amer Hawatmeh, president of St. George Oil in St. Louis, which operates four Coast to Coast convenience stores, said his success with prepaid cards and financial services overall depends on the community and its demographics.
“I find that those work really well in stores near colleges and universities in addition to urban areas,” he said.
Allowing customers the chance to reload card balances quickly and easily gives them the opportunity to carry a debit card. “These days you really can’t do anything without a number,” said Hawatmeh. “The old saying was, cash is king. Well, cash is no longer even existent in this country with younger customers anymore. Everything is mobile. Even plastic is an antiquated concept to some college kids these days. They’re looking to pay with their phones.”
Nor are the cards especially profitable anymore, Hawatmeh pointed out. “In the old days, when it was a newer idea, we could charge for the service and get a premium for it. Now everybody is doing it, so it’s not as much of a destination,” he said. “But again, my old philosophy is to try to be all things to all people. We’ve got to keep people walking in the door. Any time you say ‘no’ to a customer you risk losing his loyalty for all your other destinations.”
The profit margin generated by prepaid financial services is also shrinking as the technology continues to develop. “Nowadays you can get a phone app and pay your bills right on the phone,” Hawatmeh said. “You have to adjust your pricing accordingly to avoid losing these customers altogether.”
“They should also be bringing ideas about how to market that card and encourage people to come back and do the reloads in his stores,” Jackson said.
Marketing will play a role in how successful this category is as well.
“The first thing chains need to do is train their clerks, so that when somebody brings that card up to the register the clerk knows exactly what that is,” Jackson said. “I know there is a lot of turnover at c-stores, and I know that is a challenging aspect to these types of programs, but they need to let people know, ‘This is what this card does. It’s not a chip card, it’s a reloadable card.’”
The second thing retailers should do is devote space and signage to the products. “Tell customers, ‘Here is what this card is and here’s how you can reload it,’” Jackson said. Depending on the size and scope of the store, they should be working with the provider to do media buys or otherwise trumpet their addition.
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