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July 25, 2011 • Issue 11:07:02

Book Review: A primer on prepaid's basics

sellingprepaidGiven that the prepaid card industry continues to expand, with more and more players entering the space, the industry has lacked a primer. But that changed with the 2010 publication of Prepaid 101: Lessons in the Basics by Gene Retske, Editor-in-Chief of The Prepaid Press.

The book is primarily a collection of 65 of Retske's TPP columns focused on the fundamentals of the industry, from definitions of prepaid terminology to frequently used selling strategies. Although the columns appeared between 2002 and 2008 and much has changed in the industry since then, the information contained in the columns could prove informative for people new to the business and interested in learning some of its history and intricacies.

For example, in the first chapter/lesson, "Slippage = Profitability," Retske defines the terms "breakage" and "slippage." Breakage is a common term today, as it describes the leftover amounts found primarily on closed-loop gift cards. But slippage may be more elusive, as Retske calls it a "deviously simple method" of how prepaid phone card providers round up calling card minutes to incrementally increase profits.

As an example, Retske said a prepaid phone user who makes a 63-second call would be charged for two minutes of calling card time. Another tactic described by Retske as a "fairly common practice" is for phone card providers to set the minimum call duration at three minutes. Therefore, any call that runs less than three minutes is still charged for three minutes of time.

Retske added a 2010 update to the January 2003 column in which he recognizes that state and federal regulatory agencies may eliminate the practice of slippage.

Provisioning and pricing

Retske discusses provisioning in a March 2004 article. Traditionally, provisioning involved how cards and personal identification numbers (PINs) are set up on the processor's "switch." Once prepaid cards are assigned PINs, they are distributed to retailers for sale. When the cards are activated at the POS, a float period ensues during which card providers may have to "front" funds to retailers until payments are batched out and the back-end settlement of the card transactions result in deposits to retailers' bank accounts.

Retske said it is a complicated process that gets easier when provisioning is conducted online because prepaid card providers can "handle their own activations and check the progress of their cards themselves."

According to Retske, online provisioning includes the following elements:

  1. Card activations: The ability of an agent or distributor to ship unactivated cards to retail locations for safekeeping until they are ready to be sold
  2. Just-in-time provisioning: The agent can track sales and card activations online and in real time, providing valuable reporting
  3. Sales support: Another way to eliminate the "flying blind" feeling by recognizing how card sales are going and which retail locations are moving the most product
  4. Inventory control: Allows agents to track depletion levels and when to order new supplies

Another topic of interest is pricing strategies. It is a delicate balance providers must strike, since if the cards are priced either too high or too low, profits suffer. Pricing is important because consumers of prepaid cards look at the price of the products before other considerations surface, Retske said.

He wrote that brand loyalty was nonexistent in the prepaid card market as of December 2004, when the article appeared in TPP. "Every time a user buys a card, no matter how many times that user has purchased cards, they go through a purchase decision as if it was the first time," he stated. "This is in contrast to many other commodity markets, where brand loyalty [has] a strong bond with the consumer."

Teacher on the 101

Retske formulated the columns like lessons. Much of the information contained in the lessons concerns prepaid calling cards, Retske's area of greatest expertise. While the information is not comprehensive, Prepaid 101: Lessons in the Basics provides industry novices with an introduction to prepaid delivered in a conversational manner and with an educator's sense of humor. end of article

Prepaid 101: Lessons in the Basics By Gene Retske 2010 by Gene Retske SOLVOX Inc. Paperback, 249 pages ISBN 1-45-051367-0

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