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digital money
Powering Prepaid Loyalty
o ers like lower card fees for a period of time,” Grund predicts.
Some loyalty tools that got their start with traditional payments cards, like gami cation, already are being used in the GPR vertical. ARM Insight’s gami cation-based prepaid loyalty module has gener- ated quanti able ROI in the form of increased average cardholder lifespan—14.95 months to 4.49 months—and average lifetime spend, at $7,701 compared to $1,116, Koch notes.
Likewise, coalition loyalty—in which groups of retailers and brands band together to enable users to earn and redeem points across the entire alliance—also could have an application in the prepaid space. Popular in Europe for years, coalition loyalty nally is gaining a foothold in the U.S. with the likes of American Express’ Plenti Credit Card and FIS’s Poin- topia. By providing the underlying basis for a coalition, payment cards —including prepaid—can o er cardholders a wider array of reward redemption options, while giving merchants access to more shopper data and potential customers than they would be able to reach with
a standalone loyalty program.
Although hurdles remain in bringing loyalty to the prepaid sector, e orts to integrate loyalty could create a virtuous cycle. Loyalty programs that succeed in driving repeat usage bring GPR cards further into the mainstream, thereby leading to more merchants seeking to o er
rewards on prepaid platforms—in turn, increasing the value proposi- tion of loyalty programs, and so on. “There are challenges still encroach- ing on loyalty o ers in prepaid—
mainly cost,” Koch notes. “How- ever, loyalty and rewards can work for prepaid if the loyalty program is customized for prepaid card- holder behavior.”
The STarbuckS Model
There are many advantages for merchants that offer rewards through GPR prepaid platforms. But could open-loop prepaid also present an opportunity for retailers seeking to enhance their own in-house loyalty programs?
In March 2016, Starbucks announced it would begin offering a reloadable, open-loop prepaid Visa card, issued by Chase, to customers enrolled in its popular loyalty program. Set to launch by the end of 2016, the Starbucks Rewards Prepaid Card will enable cardholders to earn loyalty points no matter where they use the card, whether at Starbucks or elsewhere (though points will be earned at a higher rate per dollar spent at Starbucks). Other merchants offer similar loyalty cards—but most are credit cards, not prepaid. With pre- paid offering a simpler enrollment and account acquisition process, could other retailers follow suit and offer open-loop loyalty cards of their own?
Not necessarily, says John Grund, partner, First Annapolis Consulting. A long- time loyalty pioneer, Starbucks enjoys a particularly devoted customer base. “Starbucks is unique in terms of loyalty, frequency and customer engage- ment,” Grund notes. The company’s loyalty program already is built around a closed-loop prepaid gift card, so launching an open-loop card is “a logical extension,” he adds.
Other factors that make the Starbucks situation unique include a long- standing relationship with Chase and the coffee giant’s willingness to nance a card program that is not in itself pro table.
“Starbucks is funding the program’s expenses to ensure it drives the desired customer experience and behavior,” Grund says of the current, closed-loop program. “Even with an open-loop card, without signi cant consumer fees we would expect Starbucks and Chase to manage through a similar dynamic.”