Time for Merchants to Start Catering to Pre-paid Card Users

Prepaid Card

The popularity of pre-paid cards has exploded in recent years. They’re easy to get – just visit a supermarket or convenience store and look for the gift card display, where you’ll find plenty of cards bearing the Visa or Mastercard logo, pre-loaded with $25, $50 and $100. These cards can be used anywhere credit cards are accepted, and there are plenty of good reasons they are among the fastest-growing payment method in the USA. Savvy merchants are recognizing this trend and creating offers that appeal to customers who pay with pre-paid cards.


Why are pre-paid cards gaining so much traction? For starters, they help with budgeting, since you can’t spend more than the amount on the card. Parents love using pre-paid cards for allowances – knowing a child can’t max out their credit limit – as well as for online services, such as iTunes or Spotify, to prevent kids from over-spending.

No Bank Required

Many people don’t want to deal with banks. Pre-paid cards provide some of the benefits normally associated with a checking account, such as the ability to deposit a paycheck and pay bills online. Using a pre-paid card means not having to carry a minimum balance and not having to go through a credit check. It also means not having your personal data stored on the servers of a bank or retailer, where it’s potentially vulnerable to hackers. We’ve seen data breaches at stores such as Target and Home Depot, where credit card data was stolen. Of course, while pre-paid cards themselves can be stolen, the potential loss is limited to the total funds on the card.

Eschewing banks and credit cards also means avoiding late charges and annual fees; however, pre-paid cards carry fees of their own: for activation, reloading and maintenance – and you can’t escape bank fees when using your pre-paid card to get cash at an ATM. Even so, for many, these fees are worth not having to deal with a bank.

Tailoring offers for pre-paid cards can pay off

Pre-paid cards are here to stay and savvy merchants not only accept them, but design offers that cater to their customers who use them. After all, pre-paid cards offer benefits to merchants as well, including lower risk of fraud and chargebacks.

Merchants can employ pricing strategies that are friendly to customers using pre-paid cards. For example, if you run a membership site, you probably offer lower monthly rates to customers who sign up for recurring subscriptions versus “one-time” purchases that expire after, say, a month. Those offers won’t work for pre-paid customers whose balance may run out after a month or two. However, most payment processors can identify payments made with a pre-paid card, allowing you to target these customers with special offers. For example, if a purchase for 30 days of access at $29.95 is made with a pre-paid card with only $20 remaining on its balance after the sale, you can notify the customer a few days before the access ends, and offer to extend it another 30 days at $20. Some may see it as losing $9.95, but in reality you’re capturing $20 that you wouldn’t have otherwise, while improving your churn rate.

Along the same lines, you can work with your payment processor to trigger notifications to any pre-paid card consumer on a recurring subscription before access is about to expire, notifying them that they need to replenish their card to maintain uninterrupted access. Some consumers use pre-paid cards to hedge against recurring charges happening after a membership is cancelled and this type of strategy shows them you’re dealing in good faith.

These are just a couple of ideas for catering to the growing number of consumers using pre-paid cards and making sure you are doing everything you can to retain their business. Do you have other strategies to attract and retain pre-paid card users? Please share them in the comments.

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