American Express announced on August 19 that it has launched a new version of its Serve prepaid card that will give cardholders 1% cashback for all purchases made with the card. The move brings credit card-style rewards to prepaid cards. The big question now is, Will it work?
This is not the first prepaid card to offer cash back rewards. The ForexPlus Platinum Card issued by HDFC Bank in India offers 0.5% cash back on every purchase. The card is aimed at international travelers who want a card they can load in local currencies to protect themselves against currency fluctuations. Unfortunately, as of this writing, I have no information about whether or not the reward is effective for driving adoption or use of the cards.
There are and have been rewards associated with prepaid cards before the Serve program.
In the United States, prepaid cards that offered rewards generally predicated those rewards on shopping with particular merchants. The AmeriDollars reward program let cardholders who joined the program earn cash rebates for purchases made at participating merchants’ websites. They could keep the funds, or they could donate the rewards to several charities.
The program was cancelled in 2006, but it included merchants such as Target, Sports Authority, and Dollar Rent A Car.
While no data comes immediately to hand about the effectiveness of the program, it seems reasonable to think that the demise of AmeriDollars shows that the program was not terribly effective.
That has not stopped other program managers from working to incent cardholder behavior.
The Cascade Prepaid MasterCard offers its cardholders the opportunity to earn cashback rewards if they refer friends to sign up for the card and spend at least $350 per month in non-PIN domestic purchases. This is a conditional program, and not just rewards for spending, as with American Express.
Given the structure of the Cascade program, the goal appears to be to drive portfolio growth as well as card purchases. It is well established that prepaid cards are a volume business, and this program tries to drive both the volume of active cards as well as the volume of card purchases. However, if the program seems too onerous, then it won’t be effective. The spending rewards need to be calibrated so that people feel it is worth their time to become word-of-mouth marketers.
The AchieveCard, which is owned by Green Dot Corp. offers what it calls “Cash Back” offers that come in the form of email coupons or offers linked to the accounts of its cardholders. When the cardholders make a qualifying purchase, they get money posted to their account within two days of the purchases. AchieveCard also has a rewards program called AchieveRewards whereby cardholders earn points for purchases and can use those points in online auctions for things ranging from closed-loop gift cards to televisions.
Since cardholders are enrolled in these programs as soon as they sign up for the AchieveCard, the barrier to entry is low. The cardholders need to get offers at the right time, and the offers need to be matched to the cardholders for them to be effective. When it comes to AchievePoints, the cardholders need to feel there is a reasonable chance of earning a reward for the points to be meaningful. Otherwise the rewards program can turn into a negative experience.
American Express’s offering is simple and cashback rewards are generally popular. The one challenge that the new Serve card will face is its monthly fee of $5.95. This means that a cardholder needs to make at least $600 in purchases in order to break even. Now, American Express might be counting on customers to do that math and allocate more of their spending to the Serve card, which would give American Express more revenue in the form of merchant fees. But the company runs the real risk of customers deciding that the math is not likely to work out in their favor.
However, a confidence in the mathematical abilities of its cardholder base may demonstrate that American Express is expecting a financially savvy customer to use these cards. American Express has used prepaid as a way to compete for the debit portion of the payments market. This could represent a strategy of taking prepaid further upmarket and truly targeting the unhappily banked, as the company likes to call those customers.
It is worth noting that American Express has a prepaid portfolio that spans a number of segments, and it has worked to fine tune its offerings for each. It has a campus card for students, two other versions of its Serve prepaid cards—one for direct depositors and one for cash-based customers—and of course its Bluebird card for Walmart customers. The Bluebird card has a feature called Savings Catcher that compares Walmart prices with other retailers’ prices and refunds the difference if the competitor has lower prices in the form of Walmart Buck$, which can be spent at the store.
(More on Bluebird features at www.bluebird.com.)
It will be interesting to see the development of this latest version of Serve. It may be the prepaid option that gives other forms of card payments real competition in the general market. Alternatively, if it fails to draw interest from the general population, then it might be a niche product in a broad American Express prepaid portfolio.