The economic reality in the United States and across the world has changed since March 2008, when John Goodale, Director of Business Expansion, TSYS Europe, gave his initial talk about the European prepaid market at the Prepaid Expo in Las Vegas. Now, in a follow-up webinar, Goodale updated TSYS' research and concluded that contraction in the market is buttressed by successful, state-implemented programs.
In "The State of the Prepaid Market in Europe," Goodale quoted Boston Consulting Group Inc. research that said the European market accounts for 20 percent of total value loaded onto prepaid cards worldwide. Of that overall load percentage, 85 percent is concentrated in only five countries: Italy, the U.K., Germany, France and Spain.
In Italy, Goodale said prepaid is a "way of life." Six and one half million open loop, Visa Inc.-branded PostePay prepaid cards have been distributed through Italy's postal system, which has upward of 15,000 branches as the basis for a country-wide distribution network. The PostePay card can be customized to work as a gift card, a student card, a migrant worker card and so forth.
According to Goodale, PostePay cards account for close to 60 percent of all online payments made in Italy. Goodale called that figure "staggering," since Italy didn't have a prepaid card program three or four years ago.
Germany, on the other hand, has only 125,000 prepaid cards in circulation. The main hindrance to their adoption are German laws that require banks to provide banking services to all of its citizens. Since technically no unbanked individuals exist among the German population, there is no market driver for prepaid cards to act as an alternative banking and payment tool. Nevertheless, Goodale believes prepaid cards hold "much potential" in Germany since it is the largest country in Europe in terms of population size and gross domestic product.
Goodale contends that the U.K. - England, Scotland and Ireland - is perhaps the most competitive and diverse of the European prepaid markets. An estimated 5 million prepaid cards have been issued in the U.K. and, much like the U.S. model, program managers have led the way. Goodale said that, in certain market segments in the U.K., 20 to 30 different companies compete for customers with prepaid products.
The most successful prepaid card in the U.K. is the ubiquitous closed loop, private-label gift card. Its main distribution channel is shopping malls. Since gift cards were introduced there about six years ago, Goodale said U.K. consumers have grown familiar with them and the majority of retailers now offer them.
Among other European countries where prepaid card programs are gaining traction, Goodale cited Russia, Turkey and Spain. Russia is using prepaid as a payroll tool; Turkey has a sizable, credit card savvy population, which makes the prepaid card alternative an easier sell; and Spain, which owns the distinction of having launched the first European prepaid card in 1999, employs prepaid cards to subsidize food purchases and for money transfers.
Just as in all sectors of the financial services industry, the worldwide economic downturn has negatively impacted the European prepaid market, Goodale said.
The U.K., Germany, Italy and Spain are already in recession, he said. The value of the euro is falling and unemployment is rising across Europe. Consequently, demand for prepaid cards has "declined across the board."
One fallout from the global economic upheaval is the reported decrease in the number of Polish migrant workers in the U.K. - largely considered an unbanked population.
Much like the transient Hispanic labor population in the United States, Polish migrants utilize prepaid cards as quasi bank accounts. But, as the economy has soured, work in the U.K. for such laborers has dried up, and the workers have gone away.
"Another article this week showed that there's likely to be a 50 percent decrease in the number of polish migrant workers in the U.K. over the next six months," Goodale said.
"So, some of those products that have been particularly strong in prepaid over the previous 12 months can start seeing a bit of a downturn based on the number of their potential customers."
A second factor at play is that vacationers are staying closer to home, which has lessened the demand for travel cards. Thirdly, as banks consolidate, certain prepaid programs will likely be cut, Goodale said.
But Goodale emphasized the advantages of the Euro-pean prepaid industry to help it weather the economic upheaval. The Europay-MasterCard Worldwide-Visa Inc. security standard provides Europe with a common technological foundation, which makes program implementations and maintenance easier.
Europe's prepaid card market is also strong in its top-up (reloading) capabilities, Goodale said. Mobile phone and bill-payment providers have given Europe "an extremely good framework" of reload networks for "tens of thousands of stores across single countries where top-ups can be made."
Goodale believes that by 2010 new countries will likely emerge as industry leaders. Unlike the United States, Europe consists of many countries, each one having its own dominant language or languages. What prepaid programs will take off in what countries will be affected by internal factors unique to each country.
But, as it is in the United States, how and where prepaid cards are distributed will be an important factor in which programs succeed and which fail.
"Things like distribution and the channels that exist for using that card are going to be absolutely key for getting the volume that people are looking for," Goodale said.
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