Posted: 01/2000
In the Cards
Prepaid Card Services Part of Winning Hand
By Imke Mensah
With forecasts showing continued, albeit slowing, growth, the increasingly competitive prepaid calling card market remains a good opportunity for network service providers. They'll find some of their prepaid card profits coming from nontraditional users and from new service plays. While new services will attract new user types, converts to prepaid services will drive growth of new prepaid services.
The primary trend in prepaid card services, according to research by strategy consulting firm Atlantic-ACM Inc. (www.atlantic-acm.com), is expansion into new service areas, which in turn will accelerate acceptance by new users. Such services include local dial tone and wireless, which are expected to grow and make up a larger segment of the overall prepaid card industry. At the same time, "virtual" prepaid cards sold over the Internet also are increasing in popularity as non-credit-challenged consumers embrace prepaid cards.
Prepaid Callers
The prepaid calling card market can attribute some of its expected growth to an expanding retail customer base. Atlantic-ACM describes the evolving customer acceptance in three phases. The first phase finds a market with ethnic groups, consumers without phone services and the unbanked. The second phase moves to cost-conscious users, such as employers who disburse cards to military personnel, business travelers and truck drivers. Finally, in phase three there is general acceptance and use of prepaid cards by the general public. The current market is in transition from phase two to phase three.
Hard-core users. Use of prepaid cards by ethnic callers continues to be a strong source of growth for the industry. The diversity ethnicities in the United States offer service providers many opportunities for niche marketing. To be sure, the marketing approach need vary from group to group. For example, Asians, Cubans and Colombians are more brand conscious than are Hispanics, who are typically rate-conscious. And while some ethnic callers may also be credit challenged, it is not always the case.
A growing trend in the ethnic prepaid card industry is international origination cards that allow U.S. callers to purchase telephone time for relatives and friends in other countries.
Business travelers represent 31 percent of all prepaid card users primarily as they are given cards by their employers, are given promotional cards by airlines and hotels and are effectively targeted in in-flight magazine advertising.
Intelligent consumers. Consumers are becoming more savvy about the differences in prepaid cards and are casting their vote at the cash register for more reliable cards from vendors they perceive as honest and reputable.
Consumers want a reliable card they can trust not to ring busy, drop calls or become worthless because the provider has gone out of business. No-surcharge, no-connection fee products are increasingly popular among consumers who want to monitor the duration of their calls. Service providers are responding to consumers' demands by eliminating surcharges and connection fees, by offering competitive rates where there are surcharges (i.e., international cards) and by offering cards that do not expire.
New Services
As competition increases, prepaid card providers are scrambling to find new ways to attract consumers. Some are changing their plan of attack from simply targeting hard-core prepaid card users to addressing the needs of the general public. (One way is by co-branding with major retailers or brand-name communications companies.) Others are branching out and targeting additional niche markets. Still others are adding more products to their portfolio, including wireless, local dial tone and Internet.
Atlantic-ACM's research shows the market for prepaid services overall is growing, although not at the same rate for each product segment. Nearly 27 percent of prepaid providers will offer prepaid wireless by 2002, up from 3.5 percent in 1998. Similarly, more than 21 percent will offer local dial tone, up from just over 2 percent in 1998.
One interesting twist on the prepaid concept is the local area access card that offers rates tailored to a specific area code. Callers can make interLATA and intraLATA toll calls by dialing into a local number rather than an 800/888 number.
The Internet also is making some changes in the provision of prepaid cards, both in the ordering and issuance of traditional cards as well as expanding the prepaid communications repertoire. Service providers are enabling consumers to purchase "virtual" cards over the Internet. Targeted at the convenience or cost-conscious user, these "cards" have no physical component and are therefore easily purchased and recharged via the web with a credit card. In addition, prepaid card providers are adding Internet access to the list of services for which consumers may prepay. These cards can be purchased at a retail location or as virtual cards.
With the addition of these prepaid services, providers now are able to offer product bundles to strengthen their ties to consumers. A local and long distance bundle will make prepaid products a substitute for traditional presubscribed services for the unbanked, for example. But bundles need not be limited to telephony services--providers also are bundling other products and services, such as soft drinks and gasoline. These options will only expand as smart cards with memory chips enable more and more services to be paid for with a single card.
Imke Mensah is card industry analyst for strategy consulting firm Atlantic-ACM Inc. (www.atlantic-acm.com). She can be reached at imke@atlantic-acm.com
