A Prepaid Blitzkrieg

This post is syndicated at The Motley Fool Network: http://beta.fool.com/malayappan/2012/12/31/prepaid-blitzkrieg/20178/

Recently, I wrote about the enormous effort that American Express (NYSE: AXP) was putting towards popularizing its prepaid card products, which include recently introduced SERVE and BLUEBIRD.  I also mentioned that American Express (AMEX) offered a third long standing product which is just a plain AMEX branded prepaid card. 

All of these cards appear to share the same “platform,” meaning, they all perhaps use the same database. What that effectively means is that even if you can create a BLUEBIRD account and a SERVE account, you would likely not be able to link it to the same bank accounts, because American Express cross verifies pertinent information such as email address and bank account information and perhaps even social security number.

American Express is ensuring that through its prepaid card marketing blitzkrieg, it is not just targeting the same customers.

Wider marketing efforts

Apparently not satisfied with the additionally branded prepaid cards, AMEX has aggressively rolled out prepaid cards that are cobranded with AAA (American Automobile Association) membership cards for the Southern New England area. I am not sure if this is a national rollout for all AAA clubs yet, but if it is not, it wouldn’t be a far reach to presume that they are testing it. Each AAA Southern New England membership card is already a loadable card, activated online or at a AAA office and a funds load.  I have not tested this feature so I cannot confirm whether this prepaid card shares the same platform as AMEX’s other prepaid cards.

In addition, through AAA, AMEX also offers American Express Gift Cards, American Express Global Travel Card and American Express Travelers Cheques.  At a AAA office, if you purchase five or more AMEX Gift Cards, each with a value of $20 or above, you can avoid the $4.95 card activation fee, making this a pretty neat and cost effective gift giving idea. 

It appears as though American Express believes that through this massive marketing effort, they are reaching a segment of the consumer population that is not yet receptive to American Express credit cards.  Already, for quite some time, through a partnership with the warehouse club Costco, they have ensured that the only credit card accepted at COSTCO is the American Express card.

Prepaid cards – A huge market

According to the Bureau of Consumer Financial Protection, this sudden widespread emergence of what they call “General Purpose Reloadable Prepaid Cards” needs further evaluation, for which they earlier solicited comments from the public.  They intend to extend protection normally afforded to credit cards to these prepaid cards which are expected to reach $164 billion in loaded value by 2014, according to the Mercator Advisory Group. The hundreds of potential billions in prepaid cards has many providers salivating, not just American Express.

Other prepaid card providers such as Green Dot (NYSE: GDOT) and JP Morgan Chase(NYSE: JPM) already have name recognition and established networks, so much so that even American Express is using them in their prepaid card marketing strategy.  For instance, you can load the AMEX Prepaid card using a MoneyPak from Green Dot or through the Vanilla Reload Network. 

JP Morgan, the purveyor of the Chase Liquid Prepaid card proudly proclaims that they have processed over half a trillion dollars’ worth of prepaid card transactions.  In fact, they offer a complete infrastructure that allows an independent issuer from the private or public sector to market their own prepaid cards that are powered by the JP Morgan network.

This is actually nothing new in the credit card industry. Other issuers such as Citibank (NYSE:C), and Capital One Financial (NYSE: COF), for example, power department store and gas station credit cards for a variety of companies.  It would not be a stretch to expect these and other companies to jump into the prepaid card business in a highly visible, big fray as well.  I particularly expect Citibank to be interested since their new CEO, Michael Corbat is credited with the restructuring of their retail partner credit card business. If there is a significant opportunity for a more visible, direct presence, beyond the current prepaid card infrastructure services that Citibank provides now, he is sure to spot it.

The future of prepaid

The prepaid card marketing blitz by American Express is only likely to become more intense and widespread.  Other market participants are not likely to stay put and watch a rapidly burgeoning market to be monopolized by an aggressive marketer who has recognized early on the massive potential of this market segment.  While that is likely to be good news for the consumer, I expect American Express to benefit from this headstart.