The Future Form of Closed-Loop Gift Cards – Reports of Plastic’s Demise Are Greatly Exaggerated
September 23, 2011
Ben Jackson
Mercator Advisory Group
As options for prepaid card delivery grow, issuers, processors, and program managers should keep a level head when planning for the future of their card programs. Mobile wallets, virtual cards, and smartphones are all buzz phrases that have led some to predict that we will soon see the plastic prepaid card (and particularly the gift card) disappear. However, reports of plastic’s coming demise are greatly overstated.
Looking at the lessons of history, it is clear that technology leads to great changes in business, but the buggy whip is not the example to be applied here. It might make sense to look at three businesses more closely related to gift and prepaid cards: media, banking, and retail itself.
Media is the first type of business that should be considered. Here we have seen massive technological changes, with each one bringing new capabilities that weren’t available in previous forms. Radio brought features that newspapers couldn’t provide, and television brought features radio couldn’t provide, and the Internet continues to change the way everyone gets information. However, television did not kill the radio and newspapers, and while the jury is still out on whether the Internet will lead to convergence, so far the old forms are still around. That said, the cautionary note is that television was more than just a fad.
In looking at banking in the late 1990s and early 2000s, when the Internet was rising and banks were enabling online transactions, the death of the branch was said to be due any day. Yet as Internet banking became more widespread, so did bank branches. The branch building boom was so explosive that several suburbs around Chicago, and some neighborhoods within the city, put zoning restrictions on the number of bank branches they would allow. Even so, online banking is now considered a banking product that is almost as fundamental to a product line as checking and savings accounts.
Along with the death of the branch, there were some who even went as far as to predict the death of brick and mortar retail. The argument was that everyone would want the convenience of shopping online, being able to pick exactly what they want, and have it shipped directly to them. Who would want to battle with crowds in parking lots and stores when the whole world could be purchased and delivered with a click of a button? Stores have not disappeared, however, and customers still like to look at things in person and browse store racks. Also, retailers discovered that not everything was easily sold online. But despite the desire for a tangible shopping experience, every major retailer now has an online store along with all of its real world stores. Even the company that has done so much to push the world towards virtual shopping, Apple Inc., began building its own stores 10 years ago, and has not stopped adding stores since.
What these examples show us is that new technologies do not always completely displace old ones. Instead, they complement them and become a necessary component of a 21st century strategy. Gift cards will follow the same route. There will always be a place for plastic, but day will soon arrive where virtual cards and mobile cards will be a necessary part of every issuer’s prepaid strategy. The task for issuers is to figure out what needs each form factor fills and tailor their program to make each work towards the best results.