Loyalty programs becoming critical to growth of prepaid cards

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Prepaid card industry, which includes retailer issued gift cards and general purpose reloadable cards, has experienced steady growth in recent years. Percentage of adults buying prepaid cards has increased significantly especially in developed countries. In the US purchases made through prepaid cards amounted to more than USD 405 billion in 2015 and consisted of 8.5% of total retail spending in the country.

According to PayNXT360’s Global Consumer Survey Q2 2016, approximately 66% consumers preferred receiving gift cards during holiday season in developed countries and 83% plan on purchasing at least one gift card in 2016. Total spending on gift cards is estimated to reach USD 127 billion in 2015. In case of general purpose prepaid cards, 37% consumers owned prepaid cards in 2015 compared to 32% in 2014. Closed loop prepaid cards segment is expected to grow to USD 376 billion by 2020. Millennial generation is the driving force towards extensive adoption of prepaid cards. Young adults within age group of 25 to 34 years prefer retailer specific prepaid cards. Owing to their spending habits various players in developed markets are bringing in loyalty programs associated with prepaid cards to drive further adoption and growth in this segment.

• Starbucks announced the plan to launch Chase Visa prepaid rewards card by end of 2016 which allows consumers to earn reward points beyond Starbucks outlets. This will be applicable for purchases made at retail locations where Visa is acceptable. This is an extension to the loyalty program introduced earlier this year that allows consumers to earn reward points based on purchase value rather than number of visits. This has led to significant addition of 5 million consumers in the rewards program.
• Walmart introduced loyalty program 3-2-1 Save to credit, debit and prepaid cards earlier this year which allows consumers to gain 1% to 3% cashback depending on the type and payment proximity of the purchase. Rewards for online purchases are higher than in-store shopping. 3% cashback is assured on making online purchase at Walmart website while for in-store purchases it is 1%. For fuel purchases the brand gives 2% back.

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