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| Visa Launches Prepaid Load Network |
| Posted Apr 19, 2006 - 10:18 PM |
Significant Prepaid Opportunity Seen
Visa USA announced on March 17, 2006 that it has added the capability for consumers to add funds to Visa reloadable prepaid cards. The Visa Prepaid Load Network will be available at participating merchant locations across the U.S. This enhancement to the Visa transaction network will enable Visa member financial institutions access to new markets, including the unbanked. According to Visa estimates, there are 80 million consumers in the U.S. who lack access to a payment card or are without a traditional banking relationship. This consumer segment receives approximately $1 trillion in annual income and pays an estimated $1.5 billion annually in check cashing fees alone. Unbanked consumers must rely on using cash for everyday transactions. |
| Prepaid Load Network Based on Visa Network Most prepaid Visa cardholders fund their card with direct deposits, but Visa says that its market research shows that consumers also want the flexibility to add funds to their cards at everyday shopping locations. The capability to add funds at places like supermarkets and drug stores makes the prepaid Visa card more user friendly. Visa issuers, primarily banks, will including payroll, general purpose reloadable and government disbursement cards. Visa has 13,420 member financial institutions, and more than 488 million Visa-branded cards have been issued to cardholders in the United States. Last year, VisaNet, facilitated $1.3 trillion in transactions. “Visa remains focused on developing the category infrastructure to support all of our key stakeholders - cardholders, merchants, financial institutions and their partners,” said Todd Brockman, senior vice president, prepaid products, Visa USA. “The Visa Prepaid Load Network offers an infrastructure to respond to a direct need in the marketplace, supports the rapid growth we continue to see in the prepaid payments category, and helps our partners capture a greater share of cash and check spend.” |
Transaction Process |
| Win - Win - Maybe Win There are obvious benefits to merchants and the acquiring and issuing banks for the Prepaid Load Network. Merchants stand to gain increased store traffic and earn card reload fees from the program. Issuers and acquirers will have vast new markets opened for them, resulting in more transactions, thus greater revenues. Consumers will benefit, but at a cost. Unbanked consumers who do not have access to credit cards or ATM cards, for whatever reason, will now be able to have the convenience of a plastic card to make purchases, either face to face at a POS terminal, or online. Having the additional convenience of being able to add funds easily at thousands of locations will make charging up the card easier. Many prepaid cardholders are paid via direct deposit of paychecks and are unable to add funds to cards themselves. Visa Prepaid Load Network will address that issue, but there are fees involved, which can be considerable, depending on how the card is used. Banks charge a one time fee of $50, or more, to establish an account, and a monthly maintenance fee, typically $5. The first year will then cost $110-120, or more. Then, there are per transaction fees. An ATM withdrawal will cost $3-5 each, and a fee of $1-2 may also be charged for each purchase. If the purchases are small amounts, the fees could be high. Competition will undoubtedly increase as the Prepaid Load Network expands, which will likely put some downward pressure on the fees, but in the near term, Visa has probably opened a very profitable new prepaid opportunity for merchants, acquirers and issuers. Who will benefit and who will feel the pinch of more competition? “I think it’s going to hurt companies like Green Dot Financial, that have essentially set up a load network in Walgreens, CVS, and Rite-Aid,” said Bruce Burke, Director of Sales and Marketing, E-Time System. “A lot of stored value providers that are building out networks, particularly some of the smaller companies, are going to be devastated by this, because there will be no need for them in relation to Visa anymore.” A source close to the industry, who asked not to be identified said, “What it will do, just like it did in the calling card sector, is keep the existing players on their toes. They will need to find their niches, and concentrate on selling the relationship rather than the product. Value adds will become increasingly important to the network providers in order to be successful.” The source said that the addition of a new player will empower the merchant, giving the merchant more choices, “which is always good for the customer.” Initial Visa member and merchant participants are expected to introduce the Visa Prepaid Load Network service in late 2006 and early 2007. |
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