Do you have a family member who loves Himalayan salt massages? What better gift for their birthday than a prepaid gift card to their favorite spa? Perhaps you have a friend who can’t get through the day without a Dunkin’ donut fix. A Dunkin gift card can shore them up for a few days or weeks.
While prepaid cards and gift cards continue to be an increasingly popular gift option for customers, the way brands can benefit from these cards is undergoing a revolution.
Thanks to the emergence of embedded finance, brands can issue a new kind of card — whether debit, credit, or prepaid gift cards — that is mutually beneficial to the company and its customer.
Before we get into how this revolution is changing the old way of issuing cards, it’s worth taking a quick look at some numbers.
Prepaid cards via embedded finance
According to Statista, the global digital gift cards industry is worth $204 billion in 2023 with an annual growth rate of over 14 percent. Why are prepaid cards so popular?
The beauty of prepaid, debit, and gift cards is that they benefit both the brands that issue them and the cardholder. They come with a loaded balance that a customer can access and, in the case of prepaid debit cards, funds can be accessed through ATM withdrawals. Many prepaid debit cards can be reloaded with additional funds online through direct deposit, at an ATM, using a mobile app, or at a physical store location.
Embedded finance is a solution for any company that wants to provide bank-like services, including prepaid cards. In the past, only banks like Bank of America, Chase, or a local credit union could issue prepaid cards that were backed by credit card companies like Visa, MasterCard, Discover, and American Express.
Embedded finance providers can remove the need for a bank, and empower brands to offer prepaid cards directly to their customers. Brands can now offer their customers a more premium, customized experience while earning new revenue off the fees that would otherwise go to the banks issuing the cards.
Prepaid debit cards vs. regular debit cards
There are a couple of ways prepaid cards differ from traditional debit cards. First, a qualifying cardholder can only spend the amount on the card balance unless a cash reload occurs. Prepaid debit cards function like secured credit cards where the cash deposit is the credit limit for the card. Alternatively, with a regular debit card, the money a user can spend is tied to a checking account or savings account. These accounts are usually subject to overdraft fees if you spend more than you have in your account.
Prepaid cards give access to financial tools for those who don't have a bank account.
Prepaid cards have become a new way for brands to offer promotional gift cards with more benefits to brands and their customers. Traditional gift cards you find at the grocery store (sometimes referred to s J-hook cards) are closed-loop — meaning if a customer buys a Nike gift card, it can only be used at Nike.
By offering prepaid cards as gift cards, they become open-loop — so a customer can use them anywhere. So that same Nike gift card could actually be used anywhere, for any purchase. While this may seem like a small distinction, it has big implications for Nike when it comes to customer spending data, interchange revenue and future strategic partnerships.
Traditional debit and gift cards have been around for a long time, but with brands now able to issue cards directly to their customers, there's a new world of opportunity. Let’s take a closer look at some of the advantages for brands that want to issue their own cards.
Take rewards and incentives to a new level
Prepaid cards can be linked to cashback rewards or points-based loyalty programs, which are proven to improve the customer experience. According to a Deloitte survey, 70 percent of consumers spend more and engage more frequently with brands and retailers when they have signed up to the loyalty program.
Issuing a card with embedded finance allows the brand to better control, allowing bespoke, custom-tailored rewards that appeal directly to its target market. And while reward programs are not new, brands now can create more customized incentives and rewards.
The power of promotional gift cards with prepaid debit
Prepaid cards can be used as promotional gift cards to incentivize new customers to sign up for a service or program. With the dizzying amount of new streaming service providers popping up, companies like Disney, Discovery, Netflix, and Peacock are in a tense fight for eyeballs.
In this new era of card issuing, a newcomer like Peacock could disrupt the marketplace by offering new customers a $100 prepaid gift card just for signing up. In the past, that may have been a costly endeavor for a company, but by issuing their own card, Peacock could tap into a series of valuable tools that would offset the cost, and actually drive new revenue. Sound too good to be true? Well, when a brand removes the banks and traditional promotional gift card companies from the equation, the landscape changes dramatically.
As we’ll explore in the following sections, by offering open-loop promotional cards, new Peacock customers can use their card anywhere they want, on anything they want. This unlocks invaluable consumer insights, new interchange revenue every time a card is used, and just-in-time funding frees up cash flow.
Just-in-time funding and breakage increase cash flow
Traditional gift card programs require a company to fund the campaign upfront before a single card is issued. For large-scale brands, this can add up to tens of millions of dollars being locked up for months, if not years.
And what happens if those gift cards go unused? Those untouched balances are called “breakage,” and don’t always end up back in the hands of the brands. In the past, brands would chalk that up to a marketing cost, but that lost money is real. Bankrate found that 47 percent of U.S. adults had at least one unspent gift card or voucher with an average value of $187. That's a total of $23 billion.
By issuing their own cards through embedded finance, Peacock doesn’t have to worry about locking up tens of millions of dollars for extended periods of time because they can fund cards the moment they’re used. This frees up significant cash flow. And any breakage flows to the brand, vs the bank issuer.
First-party data insights from card issuing
The old way of issuing gift cards gave companies little — if any — data on how their customers spent money because traditional gift card companies kept that information for their own purposes. This meant companies were entering a bit of a black hole when it came to valuable spending information.
Companies that issue their own prepaid gift and promotional cards don’t have to worry about that because the consumer spending data is owned by the brand, giving them unprecedented first-party consumer insight.
For a streaming service like Peacock, this can become an invaluable asset as it relates to sponsorship opportunities, advertising partnerships, and even the type of content (and personalities) they choose to work with when creating original content.
The data shows the how, where, and when of consumer spending, but respects consumer privacy because no private or personal data storage is shared. This data allows companies to better serve and grow their customer base because they can spot customer trends and spending habits and invest resources accordingly.
Turn interchange fees into interchange revenue
Interchange revenue is one of the biggest benefits for a brand that wants to issue its own cards, and it’s a great opportunity to drive new revenue. The traditional way for a company to create a co-branded card requires them to have a bank, to issue the card on their behalf. As such, Chase and Bank of America reap the rewards of the interchange fees — not the brands offering the cards.
Interchange fees, or “swipe fees,” are the fees a merchant must pay the card-issuing bank every time a credit, debit, or prepaid card is used to make a purchase. While the fees are relatively small, when multiplied by millions of transactions, they can add up to tens of millions of dollars, if not more.
When a brand like Peacock decides to work with an EmFi provider and issue its own prepaid promotional card, it cuts out the need for big banks, and those interchange fees now come as a completely new form of income called interchange revenue. This paradigm shift is a game-changer for any large brand that wants to issue cards, whether it be credit, debit, or prepaid.
Easy set-up and integration for ccard programs
Any company can expand its brand awareness and revenue with these “smart cards'' by partnering with an embedded finance provider such as Alviere. Setting up a prepaid or gift card service is easy because Alviere handles the end-to-end services, including security and compliance, so big brands can focus on what they do best.
Set-up fees and per-card costs are typically low. Virtual or electronic cards are usually a cost-effective option and the fastest to issue while physical cards showcase branding.
End-to-end services
Alviere provides end-to-end expertise, making it easy for companies to seamlessly integrate cards and loyalty programs into their platforms and legacy infrastructure. This include card issuance, authentication and access control, smart card technology, compliance, and secure payment processing. An embedded finance partner like Alviere manages fraud management, compliance, and offers 24/7 customer support, so brands don’t have to invest in the operational and infrastructure overhead.
Building a stronger card program
Alviere’s debit, credit, and prepaid cards are designed to reflect a company’s brand and vision while deepening the customer experience from start to finish. Cards are issued in both physical and virtual form, feature company logos, and drive new revenue.
With a partner like Alviere, any brand can issue a secure and compliant branded card with customized rewards and incentives for its customers. Large enterprises can tap into a new world of financial independence and remove their dependency on traditional banks.
If you think your brand can benefit from issuing cards directly to your customers, then we’d love to hear from you. Just reach out and let's discuss how we can help.
