A
NEW pre-paid Community Card has been launched by Big Issue foundation chairman
Steve Round with the dual aim of improving financial inclusion and providing a
member benefit for groups and organisations.
Mr
Round, who is also chair of the London Rebuilding Society, a community
development finance institution, and was formerly Marketing Director at Unity
Bank, says that pre-paid cards combine many of the advantages of credit cards
without the downside of debt.
They
have already proved popular in the United States but have so far made little
impact in the UK, apparently because of cost.
Now
the Community Card issued by the mutual Newcastle Building Society offers
advantages to member organisations and consumers at a realistic price.
First
Two
credit unions, Rainbow Saver Anglia and Ipswich & Suffolk Credit Union,
which were the first to launch the scheme last month report a positive take-up
with 100 applications on the first day of operation.
Under
the terms of the scheme, credit union members can use their card ten times a
month to pay for goods and services in shops as well as online for a month fee
of £3; additional transactions cost 20p each. Cash withdrawals from ATMs are
charged at £1 but cashback is available on the card at no cost.
As
part of the deal consumers are offered:
l
A pre-paid
Community Card with the Maestro logo, acceptable in the vast majority of
retail outlets in the UK as well as many overseas
l
Access to
buying goods and services sold over the internet and by phone with no risk of
fraudulent access to credit and debit card details
l
Family
inclusion - parents can make the card available to children over 13, both as a
way of providing them with funding at home and abroad and as a way of
introducing them to sensible use of money on a card
l
A tool for
managing money
l
A safe
alternative to carrying cash.
The Community Card offers organisations a means of
generating member loyalty and attracting new members; control over the terms and
conditions of the card being provided to members; a guarantee of universal
acceptability and conditions; a source of revenue.
Said Mr Round:
"All too often, financial companies are only interested in cherry-picking
organisations offering access to affluent members.
"With The Community Card programme, however, any membership organisation can share the economies of scale that the programme can access, receive a return through the scheme and offer an all-inclusive benefit to its members".
For the first time prepaid cards have become a viable option for all in the UK thanks to a radical new business model launched.
Although prepaid cards have been a phenomenal success in the States, combining many of the advantages of credit cards without the downside of debt, so far they have faltered in the UK, mainly because of cost. Now a new initiative, The Community Card programme, available through membership organisations, is bringing prepaid cards to the UK at a competitive price. The programme offers advantages to member organisations as well as to consumers.
Two credit unions, which were the first to launch the scheme, report a positive take-up with 100 applications on the first day of operation (see case history over).
Consumers are offered:
l
a prepaid Community Card with the Maestro logo, acceptable in the vast majority of retail outlets in the UK as well as many overseas;
l
access to buying goods and services sold over the internet and by phone with no risk of fraudulent access to credit and debit card details;
l
freedom for credit - no access to debt;
l
family inclusion - parents can make the card available to children over 13, both as a way of providing them with funding at home and abroad, and as a way of introducing them to sensible use of plastic;
l
a tool for managing money;
l
a safe alternative to carrying large sums of cash.
The Community Card offers the organisation:
l
a means of generating member loyalty and attracting new members;
l
control over the terms and conditions of the card being provided to their members;
l
guarantee of universal acceptability and conditions, unlike other membership-based financial products such as credit cards or insurance;
l
a source of revenue.
Steve Round, chairman of the Big Issue Foundation, and the man behind The Community Card initiative sees it as both a driver for financial inclusion and membership enhancement. He says:
"All too often, financial companies are only interested in cherry-picking
organisations offering access to affluent members. With The Community Card programme, however, any membership organisation can share the economies of scale that the programme can access, receive a return through the scheme and offer an all-inclusive benefit to its members".
September
21 2007
For more information about The Community Card
programme contact:
Steve Round at steve@thecommunitycard.co.uk or tel 020 7636 5214
mobile 07813 806140.
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The UK is seen by many as the most attractive opportunity for prepaid cards in
Europe. A recent study by Boston Consulting Group for MasterCard forecasts
that the UK will become Europe’s largest prepaid market, with spending of
$34 billion by 2010 (ECR, May/June, p21).
Such forecasts need to be treated with caution. To reach $34 billion of
spending by 2010 – equivalent to over 10% of current UK credit card turnover
– will require extremely high growth in prepaid use over the next three
years.
The strongest reason for expecting takeup of prepaid in the UK is that
consumers are familiar and comfortable with cards. Debit and credit cards are
the dominant payment instruments other than for very small value payments,
where cash still dominates, and regular bill payments, where direct debit
dominates.
But one reason for the high level of card use is the current pricing of debit
and credit cards. This presents prepaid issuers with the challenge of pricing
their cards competitively against existing payment cards. Card issuers will
need to rethink existing business models.
Given the UK tradition of ‘free’ current
account banking, debit cards are issued without charge and domestic use at POS
and ATMs (other than non-bank ATMs) is free to the user. Other than premium
brands, credit cards in the UK are generally fee-free to the user and promoted
primarily as a borrowing instrument.
Without income streams such as ad valorem interchange and interest on
outstanding balances, most prepaid issuers are forced to charge for cards and
for services such as value loading and ATM withdrawals. As a consequence, the
perceived costs of UK prepaid cards are currently very high relative to debit
and credit cards.
Contrast this with Italy, the largest European prepaid market to date, and
forecast to rank second in Europe by 2010, according to BCG. In Italy, direct
bank charges and holding/usage fees for credit cards are well established.
There is therefore less resistance to holding/usage fees for prepaid cards.
Indeed, prepaid cards are often cheaper than credit cards.
Prepaid cards in the UK are clearly not a replacement for debit cards, now
firmly established as the main UK payment card, nor for credit cards given
that they offer no access to credit. But attitudinal changes do offer
opportunities. Many UK consumers are now wary of taking on debt, and more
comfortable with a ‘pay as you go’ approach, as evident in the mobile
phone market, which they find easier for personal budgeting than running an
account.
Uses for prepaid and the search for potential customers often focus on niches.
But whether niche segments can be profitably developed remains to be seen. If
cards are focused too narrowly on specific niches, the risk is that the fees
charged to cardholders become prohibitively high.
Some niches will be supplier-driven, and reflect the scope for cost savings.
For example, prepaid can help businesses – typically, insurance companies
honouring claims – to streamline back office processes by issuing cards in
place of a cheque or paper voucher (ECR, July/Aug, p21).
The economics of other niche cards – for example, those targeted at the
remittances market - may work for consumers if the savings compared with
alternative remittance channels outweigh the specific card fees.
What is difficult to see is how an acquisition strategy replicating the
marketingbased, direct recruitment approach used for credit cards can succeed.
Several prepaid cards have been launched on this basis, but recruitment costs
of at least £50 per cardholder translate into extremely high fees. Based on
reasonable usage assumptions, our analysis shows the first year cost of cards
currently on the market of more than £50 a year, with several costing well
over £100 a year. These are simply unsustainable.
Given the significantly lower acquisition and distribution costs, we believe
offering prepaid cards through partnerships is the most viable route to
market. Potential partners range from membership organizations, such as credit
unions or trade unions, to retailers keen to strengthen customer
relationships.
Prepaid cards can be positioned as either complimentary to, or alternatives
to, existing affinity, co-branded or private label credit cards. The
traditional store card is anyway in decline in the UK. Prepaid offers an
easy-to-issue alternative for those merchants keen to develop or maintain a
card-based relationship with customers.
A prepaid offer enables individuals who do not currently qualify for a credit
card – and would be rejected if they did apply – to have a partner-branded
card, with the associated benefits such as discounts. It will also appeal to
customers who want a partner-branded card but, even if they qualify, are not
interested in a credit card. In addition, the fact that all applicants can
have the product makes prepaid an ideal enhancement to membership cards.
In addition to lower acquisition costs, the partnership relationship, with
associated incentives, can be used to encourage and sustain card use. There
are particular opportunities for partners to promote prepaid as an online
payment card, which is anyway likely to be their fastest growing market
segment.
Despite the continuing growth in e-commerce, consumers are increasingly
reluctant to use their debit and credit cards online. In addition to security
fears, consumers are deterred by the growth in surcharging, particularly of
credit cards, in key online sectors such as the budget airlines. As a result,
figures from APACS show that online card spending is now growing more slowly
than internet commerce overall.
This provides an opportunity to position prepaid as a more secure means of
online shopping. Consumers can simply transfer funds to the prepaid card
sufficient for their online shopping, with liability limited to the amount
transferred. The risk of a compromised bank or credit card account – with
the associated time and hassle of dealing with their card issuer, waiting for
funds to be re-credited, waiting for a new card – is removed. If for some
reason the prepaid card is compromised, a new card can be issued quickly and
easily.
In conclusion, given existing debit and credit card pricing, the UK is a
challenging prepaid market. Despite the tempting forecasts, the viability of
some products already launched is open to question. Prepaid will only get
close to spending of $34 billion by 2010 if acquisition costs are kept low,
and usage sustained once the card is issued. Our analysis suggests that
partnership-based issuance and promotion of prepaid for online payment offer
the most promising opportunities.
By Steve
Round and Peter Welch.
Steve Round has launched the community card prepaid programme in the UK.
Peter Welch is an industry consultant (www.bankecon.com).
This article originally appeared
in European Card Review in September 2007.
To read the full article click here. Visit the European Card Review's website
at www.europeancardreview.com.
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Steve
Round, the chairman of homelessness charity the Big Issue Foundation, has
launched a new pre-paid card that small charities could offer to their members
as an alternative to affinity credit cards.
Many
major credit card companies are willing to enter into deals only with
organisations that offer access to affluent members, but the foundation's
Community Card - a top-up debit Mastercard under the Maestro brand - is being
hailed as an option for groups of any size or membership.
"A lot of charities have used affinity credit
cards in the past, but they are putting people into debt," said Round, who
is also an adviser to Charity Bank. "The problem with credit cards is that
half your members won't even be eligible if their credit rating isn't good
enough. this idea is much more inclusive."
The card is currently being piloted by Rainbow Saver Anglia and Ipswich and
Suffolk credit unions, which are charging £3 per month to cover transaction
fees.
However,
Patrick Cox, founder of the Small Charities coalition, warned: "On paper
it's a good concept, but it needs a lot more work before it's ready for small
charities to use."
This article originally appeared
in Third Sector on September 19 2007. Visit their website at http://www.thirdsector.co.uk.
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European consumers are set to spend EUR75 billion by 2010 using reloadable pre-paid cards, which are targeted at customers that do not have a bank account.
According
to a report by European payment consultancy PSE Consulting, stored value
cards are expected to account for 2.3 billion card transactions per
annum by 2010 - compared with 150 million transactions now -
representing five per cent of total card transaction volumes and three
per cent of total card spending.
PSE says annual growth rates of the prepaid card market will exceed 110% for the next five years, and pre-paid gift products - such as card-based gift vouchers - will fuel a significant proportion (almost 30%) of total spend.
The use of the cards as an alternative to travellers cheques and foreign cash will also drive growth and account for 15% of spending. Internet payment cards (which provide a secure alternative to credit cards) are expected to generate 13% of spending, while company rewards and incentives programmes are set to account for 12% of spending.
But despite the anticipated rate of growth, Peter Jones, managing director of
PSE, says banks must act quickly if they are to secure their share of the pre-paid market and compete with non-banks.
"We have forecast that 58% of spend will occur on Visa or MasterCard branded cards but, to date, banks and financial institutions have been adopting a 'wait and see' strategy," he says.
Jones says this is illustrated by Poste Italiane in Italy which currently has 1.9 million pre-paid cards in circulation.
The research found three separate segments are set to become the focus for pre-paid market development - stored value gift cards, direct financial institution offers including cards used for Internet payments, online gaming, travel cards or remittance products and business solutions such as cards for delivering government benefits and payroll.
As part of the research PSE carried out a mystery shopper survey using several different pre-paid travel products and those targeted at the un-banked which found that the registration of some products was very complex and may deter customers.
Chris Jones, senior consultant at
PSE, says: "The sector must focus on developing and delivering simpler, cheaper products and services if the forecast levels of growth are to be achieved. The issues associated with directly charging consumers for pre-paid services mean corporate pre-paid solutions are likely to offer more attractive revenue models in the short term."
This article originally appeared on the
Finextra website. PSE Consulting's original press release can be read at their website.
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The Community Card Limited2 Ridgmount StreetLondonWC1E 7AARegistered in Eng No 06258668
Maestro®is a registered trademark of MasterCard® International Incorporated. This card is issued by Newcastle Building Society pursuant to license from MasterCard® International or its affiliates. Newcastle Building Society is authorised and regulated by the Financial Services Authority and is entered in the Financial Services Authority Register under registration number 156058.
