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Research Report: Closed-Loop Prepaid Card Market 'Fallen Into a Rut'
October 15, 2009
By William Ng
The total prepaid card market, both open loop and closed loop, continues to grow. But closed-loop gift cards—those issued by retail merchants and usable only in their stores—was not responsible for much of that growth, says a report by Mercator Advisory Group, based in Maynard, MA.
The reason, Mercator believes is that despite its large size, or perhaps because of it, the closed-loop market has fallen into a rut and few investments are being made to create innovative solutions that increase the value of closed-loop cards to both consumers and businesses. In fact, most of the growth by open-loop (credit-card-branded) gift cards is actually to "unbanked" consumers who lack debit cards.
There were several fast-growing closed-loop market segments, such as digital media (24 percent growth), consumer incentives (closed-loop, at 19.3 percent), and petroleum (23.2 percent). But these markets were unable to compensate for several large segments that underperformed. Several underperforming closed-loop segments in 2008 were closely associated with consumer spend that was impacted by the recession and reduced corporate spending.
"While clearly the economic downturn hasn't helped investments, it has instead increased the challenges that confront program managers, and the fact remains that the majority of the closed-loop market has become lackadaisical," says Tim Sloane, vice president of client services and director of Mercator Advisory Group's Prepaid Advisory Service, and author of the report. "Program managers have apparently accepted slow growth as the industry's fate, instead of making needed investments. Growth in closed-loop solutions will ultimately occur, but given current lackadaisical efforts by merchants, it seems likely that growth is a long ways off and will be achieved first by a short list of closed-loop innovators."
In 2008, $187.24 billion was loaded on closed-loop prepaid solutions, a slight increase of 4.3 percent over the 2007 load of $179.59 billion.
Other highlights of the report include:
• The total load in 2008 (open- and closed-loop) was $247.7 billion, a $27.4 billion increase over the $220.3 billion load in 2007 (an increase of 12.4 percent).
• Closed-loop gift cards used for consumer incentives grew by 19.3 percent.
• The digital content category had another great year, growing to $8.04 billion for a growth of 17 percent. Of this, digital media, driven by Apple and other music prepaid products, accounted for $4.71 billion for a 24 percent growth rate, despite a poor 2008 holiday season.
• The in-store gift card market segment only grew by $1.1 billion, while some specific merchant categories saw negative growth.
• While in-store sales were very slow, sales of gift cards through third-party distributors grew by 21 percent; the highpoint for most gift card merchants in 2008.
Mercator Advisory Group's report covers business travel, events and meetings, employee and partner incentives, and consumer incentives, among other categories.
For more information, visit Mercator Advisory Group.
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