Phone Plus Prepaid: All Aboard!

Posted: 9/2003

All Aboard!
Stored Value Cards Gain Steam

By Tara Seals

The idea of the prepaid debit account
is gaining steam and a number of big names are hopping on board.

Prepaid ATM cards, also known as stored value or prepaid cash
cards, are used primarily by teenagers and the credit challenged. There also are
people who simply dont want to buy goods on the Internet with anything linked
to their checking account (as is the case with traditional debit cards). Theres also a market for prepaid gift cards, prepaid casino
gambling cards, and some employers offer prepaid paycheck cards to workers
without a bank account, in lieu of actual checks. According to research done by
marketer Stored Value Inc., the total market for prepaid ATM cards is expected
to grow by 338 percent, to almost $800 million by 2005.

Evidence of that growth is common. This summer PreCash Inc. announced a new relationship with Verizon Wireless. PreCash
lets customers add any amount between $15 and $600 to their prepaid debit
accounts, which are linked to rechargeable and reusable PreCash cards sold at
participating locations nationwide. It particularly targets prepaid wireless
phone users that can use the cards to replenish their accounts. PreCash has been
adding steadily to its roster of service providers that allow users to pay with
PreCash.

PreCash cards do not have a currency value, which makes it a
less risky proposition to carry around. The PreCash process converts cash
presented at a point-of-sale location into electronic currency, and loads that
currency onto a customers storedvalue account.

Prepaid long distance exploded in 1993, and now the same
thing is happening with prepaid wireless, says Matt Callanan, CTO at PreCash parent company PreNet. With
prepaid cellular, wireless companies can offer wireless service to customers on
a pay-as-you-go basis. As a result, carriers are increasing their customer base
by including customers without access to credit cards, who have limited credit
or who want to pay cash for services as they need it.

Similarly, teenagers and college kids can benefit from such
prepaid debit options. Visa launched enhanced education initiatives in July that
tie in with its Visa Buxx prepaid ATM cards, to help tap this market. Fiscal
responsibility touch points in the education program include whether to pay by
cash or check, when to pay bills, creating a spending plan and savings
strategies.

Visa developed the Buxx prepaid card to help parents teach
young people how to manage their money wisely through hands-on experience, says Rhonda Bentz, Visas director of public affairs. Along
with their parents mentorship and practice managing money on a limited
budget, teens can learn from financial education materials on the Visa Buxx Web
site, including our Be Centsible financial literacy quiz. Prospective cardholders must first take the online financial
literacy quiz on the Web site before their parents can apply. Once accepted,
parents control the funds in the account, and can either add or withdraw money
as they see fit. Cardholders and their parents can monitor all transactions
anytime online or by phone, and monthly electronic statements are available for
families to review and discuss.

Young people need to have a solid grasp on the
responsibilities that come with financial independence, says Bentz. Parents who choose prepaid cards such as Visa
Buxx are able to provide teens the crucial experience of living on a limited
budget and being accountable for their fiscal decisions. Visa says it sees the trend toward prepaid cards continuing to
grow, with the number of Visa Buxx cards issued steadily increasing from four to
eight percent a month.

In early August, BanX Inc., a stored-value provider formed by
Alvin C. Rice, former vice chairman of Bank of America, released BanXcard
Maestro Card, a card that can be used as a debit card to pay for purchases, as
an ATM card to withdraw cash worldwide and as a phone card. The BanXcard Maestro
Card is issued by BANKFIRST, pursuant to a license from MasterCard
International.

BanX says the card is designed for individuals without bank
accounts, who wish to avoid high transaction fees by going to a BanXcard
retailer and having cash or payroll check proceeds stored on the card. The
cardholder, without delay, then can use the debit card feature to purchase
goods, go to a nearby ATM and obtain needed cash, or make phone calls. The
balance of the cardholders funds is stored safely and available for future
withdrawals. BanXcard users are given two cards initially. A second family
member could be given one of the cards and then easily access the funds
internationally over the ATM networks.

The card is available from retail merchants, check cashing
businesses, travel agencies and other locations. The merchant easily can load
the card with money by using a swipe terminal. With the BanXcard, the user then
can purchase goods at any merchant that accepts debit cards. There is no limit
to the times the cardholder can reload his card.

BanXcard is available only in select markets in the United
States, it eventually will be available nationwide.

Clearly a sign of industry health, 7-Eleven Inc. also plans on rolling out its own prepaid cash Convenience
Card, to be used for paying lastminute bills like phone or utility payments.
The retailer just signed a seven-year strategic alliance to offer
round-the-clock in-person bill payment services with e-Money Systems Inc. at
7-Elevens Vcom electronic kiosks, in-store integrated financial kiosk that
merges ATM capabilities with other services. The new service allows for paying multiple bills through a
variety of payment methods, including cash, automated clearinghouse checking
accounts, credit, ATM debit and the Convenience Cards.

7-Eleven created Vcom to provide consumers around-the-clock
access to products and services not traditionally found in convenient locations,
says Jay Giesen, 7-Elevens vice president and general manager of Vcom. With
Vcom, billers can offer a convenient and efficient payment option to their cash
customers who can pay bills at the last minute, perhaps avoiding discontinuation
of services.