Industry Comments
Francesco Guzzetta comments
Francesco Guzzetta
Business Leader, Prepaid Product Sales, Southern Europe
at MasterCard
Francesco Guzzetta, business leader of product sales for prepaid in Southern Europe at MasterCard, says that online spending has helped spur the uptake of prepaid in Italy. ?According to latest independent market research, online spending still represents the most significant share (up to 40 percent), but usage at retail locations for everyday purchases is also a growing trend. Travel and entertainment spending (both online and at the physical POS) is also very particular to prepaid cards in Italy, and the airline sector is definitely one of the most popular categories. Average usage patterns are quite homogeneous for general-purpose reloadable prepaid programmes, with around ?1,000 of average spending per year, 5 to 6 reloads per year, and an average transaction amount close to ?70,? he told CI.
The way that prepaid is priced in Italy has also helped its uptake, largely due to the homogenous nature of the prepaid model. MasterCard?s Guzzetta told CI: ?Unlike UK and other EU countries, where offers are more specialised on vertical markets/applications (e.g. gift cards, travel cards, teen cards), the main proposition in Italy is still an undifferentiated general-purpose card. Pricing follows a pure pay-per-use approach, which is very simple and transparent: a one-off purchasing fee for the card, reloading fees (generally a flat fee, not linked to amount reloaded), and ATM withdrawal fees. Generally speaking, the complex pricing models and hidden fees typical of other EU markets do not apply in Italy,? he added.
?However, product standardisation, absence of disposable card propositions, higher average rate of usage and float, and larger scale of programmes help to keep simplicity. It is also worth noting that, unlike UK where prepaid is a game for small niche operators, the market in Italy is driven by major traditional financial institutions, who can more easily benefit from scale economies and lower dedicated infrastructural costs.?
Meanwhile, MasterCard?s Guzzetta points to anti-money laundering (AML) regulations as being another possible pressure point for prepaid. ?In the current environment there is increased pressure on card profitability, at the same time the value of prepaid for consumers and issuers is more and more understood. National and European AML regulations on anonymous reloadable cards might instead be an opportunity for the introduction of new distribution models, avoiding the need of contract signature and cardholder identification by qualified operator, and therefore allowing for non-traditional distribution channels,? he told CI.
However, he is sceptical that the introduction of the PSD, which will give the green light to non-financial institutions to offer payment services, will significantly change the market. ?Economies of scale are essential in prepaid, and therefore in the short term we will probably not see new players becoming direct issuers of prepaid cards. More likely, the scenario will be characterised by partnership and agreements between non-banking operators and existing financial institutions.?
Over the next few years, Italy?s prepaid market is likely to be characterised by increasing functionality and differentiation. ?In the next few years it is expected that prepaid offers in Italy will evolve from the undifferentiated general-purpose card to more segmented products. This is a trend we can already observe today, for example with the ?light banking? prepaid account proposition. Also, closed/restricted acceptance products will probably make their appearance in the Italian market,? MasterCard?s Guzzetta told CI.
There is also likely to be a greater role for government applications, according to MasterCard?s Guzzetta. ?In Italy there is still a significant part of the population with limited access to financial services. As a consequence, prepaid cards can surely play a role in public administration initiatives, as has been proved by the recent Carta Acquisti social benefit card, the largest prepaid government programme in Europe, launched by Poste Italiane in cooperation with MasterCard. On the other hand, the potential for corporate applications appears to be more questionable, due to high fragmentation and small size of Italian companies, and will probably only represent an opportunity for niche players?
Gianluigi Rocca comments
Gianluigi Rocca
Marketing Manager
at SIA-SSB's Cards Business Unit
What are the economic/cultural factors that have made prepaid products so popular with Italian consumers? What are the reasons for this success and what can Europe learn from Italy in terms of product refinement and marketing?
Italians are well used to prepaid payment for different products, more than 90 percent of mobile phone contracts are prepaid, so there was no problem in introducing a financial model using the same concept.
A few banks thought that prepaid was a good idea and pushed for them since 2002. San Paolo bank, now Intesa SanPaolo, was the first bank to issue an open loop prepaid card and has a pivotal role in developing prepaid cards in Italy.
Recently BancoPosta has been able to develop a European leadership addressing their customer base with a very good marketing approach and a set of different products. Their success was so wide because they directly addressed the needs of their customer base, which had never been met before by other financial instruments.
More recently CheBanca! (Mediobanca Group) was the key issuer in a new category, the 'light account' one. Their prepaid card is a substitute for a current account, and has an IBAN associated to the card for 'standard' payments, bill payments, and a 10.000 euro plafond. Their motto 'choose your account by colour' was an excellent way to convince people to enter their branches, on-line branches mainly, and select a fashionable financial product.
How do Italian consumers typically use their prepaid cards - for example, do they use them mostly online or for everyday spending? Do you have any data on spending patterns, average transaction amounts, most popular merchant categories and so on?
Prepaid cards provide a direct substitute for today's cash and cheques as they can be used by customers that do not have a bank account and can be as "anonymous" as cash for online and offline payments.
Italy still has a cash dominated culture and one of the key indicators for this is the average value for prepaid cards cash advance of c.ca 130 Euros, 120 for national brand and 139 for international brands, which is largely different form that of other countries, average POS transaction value is in the range of 65 euros.
One of the most interesting markets is in the online market and this reflects the expansion of e-commerce business in the last couple of years and highlights other card products' limited ability to serve the demand for online payments.
Which fees (purchase, reloading etc) comprise the bulk of revenues from prepaid, and how have pricing structures changed over the last few years?
Although prepaid cards have many advantages, they can cost you money through various charges and fees. In Italy one of the key issues in pricing is the general drop of the different fees over time.
A forecoming report will indicate a minimum annual cost of 20 euro for an open loop card. There are a wide variety of charges and charging structures in this report but card issuance and top up are always present, and monthly or annual costs aren't explicitly used in Italy.
Currently top up cost for open-loop cards is in the range of 0.5-0.7 Euro in Italy, which is a middle level cost when compared with, for example, the UK and the Germanic countries charging over €1.
Given that Italy has such a fragmented retail market, what are the prospects for retail closed-loop gift cards?
US gifting had a phenomenal success and expectations of similar performances will never be met in Italy. Open-loop prepaid cards are much preferred over closed-loop cards and gifting has not been as popular in Italy as in other European countries, it is beginning to gather some speed now. In the past few years, figures have been very low in Italy, probably also because there are not so many large retailers as elsewhere in Europe, but this situation is changing as some Italian retailers are understanding that gift cards may represent an important opportunity for them, above all in terms of profitability margins.
It appears that there is a growing trend of prepaid issuers opting for the MasterCard platform in preference to Visa. What are the reasons for this? Is it better technology availability or processing power?
The overall view of European open loop cards is that MasterCard is currently ahead of Visa in many of the mature markets (UK, Benelux, etc) apart from France, but that Visa dominates some emerging markets in the Eastern/Mediterranean. Domestic schema. Bancomat/Pagobancomat, is well positioned in Italy and issuers are making their choices considering many internal parameters: the current MIFees debate isn't helping identifying a possible dominant position of one of the schemes.
How do you see the prepaid market developing over the next few years, in terms of functionality and market competition, and how is SIA-SSB organising its technology resources and investment to capitalise on this?
As 'status quo' is not an option, and differentiation is key, we are prepared to accept change, as it creates opportunity to build better economic processing models.
Italy is relatively mature as a prepaid market and we are working on different lines of evolution, where the general idea is to add additional value to the current prepaid proposal. Firstly, we are working to develop new features. I believe it is important to give issuers the possibility to develop vertical proposals and specialize, for example, in corporate cards or in specific solutions, such as contactless transit solution. We are already able to support issuers in the creation of such vertical segment proposals.
In addition to this, we are developing specific fraud solutions for prepaid cards as well as for closed-loop cards. From the point of view of the prepaid platform itself, we are investing and evaluating possible partnerships, because we believe that in some areas, such as gifting, probably we need a simpler solution.
We are used to dealing with large sized programmes and the volumes we're seeing in the area of gifting aren't on this level. Contactless is already successful in transit, specific business sectors and multiple geographies and Issuers are considering how best to integrate new payment tools to develop their franchises.
At SIA-SSB we believe contactless solutions are here to stay and effective and significant opportunities to leverage the value proposition of contactless solutions are currently available.
We are already working with some of our customer to develop solutions to reduce queuing time at cash registers.
Mobile phone users are already familiar with using their phones to pay for products such as games, ring tones and other digital content and we're currently evaluating additional possible ways to enable banks to offer new, differentiated payment services to their customers integrating prepaid cards and mobile solutions.
What is your view on how the prepaid market is regulated in Italy? Are banks and processors such as SIA-SSB happy with the regulatory situation at the moment? What more should the regulators be doing to facilitate the growth of the prepaid market?
There is a mixed situation in Italy as far as the regulatory framework or prepaid cards is concerned. On one side, there is only one rule for all and this makes it quite simple. On the other side, however, this one rule is quite strict, and, for instance, it is difficult to distribute open-loop reloadable prepaid cards outside of bank branch networks and this is a large limitation from my point of view. PSD introduction will change this situation but what we would like to see is more flexibility. From the open-loop reloadable points there is no problem, the infrastructure is very good, but again we need more flexibility as in terms of distribution of cards.
Do you think there will be a role for independent prepaid programme managers in Italy, or will prepaid remain dominated by the large financial institutions?
Even if the views were generally positive about the ongoing need for Programme Managers, I believe that in Italy, as well as in Spain, this role will be developing over time, rather than immediately. The opportunities for cross border services are limited as well.
Flavio Mastrangelo comments
Flavio Mastrangelo
Head of Prepaid Products
at Poste Italiane
CI: What are the economic/cultural factors that have made prepaid products so popular with Italian consumers?
We launched our first prepaid card in November 2003. When we launched, we were not the first in the market. In the Italian market there were a couple of other prepaid cards. But the main cultural factors that allowed us to achieve success was that the concept of prepaid was already well-known in Italy thanks to the proliferation of mobile telephone prepaid cards. In Italy more than 90 percent of SIM cards are prepaid SIM cards, so the concept of prepaid was very well known. The other cultural factor was the savings factor. With prepaid, people can control their purchasing and how much they want to spend. These are the two main cultural factors that allowed us to launch the product in a good environment. Of course it was an innovation for the card market here in Italy, and we had to invest a lot in education - how to use the card in general, and especially how to use prepaid cards and the concept that the prepaid card was not linked to a bank account, and the concept that you have to load money on the card otherwise it doesn?t work.
CI: In the rest of Europe, banks have been reluctant to embrace prepaid, but Poste Italiane and Italian banks have been very successful in rolling out open-loop prepaid offerings. What are the reasons for this success and what can Europe learn from Italy in terms of product refinement and marketing?
One of our strengths was our branch network and the relationships with our customers. Historically we have had very good relations with our customers because we are closer to the needs of our customers - people are less reluctant to go in a post office compared to a bank, especially unbanked people, the people that don?t have bank accounts. Post offices are generally more customer-friendly than banks. That is also one of the cultural aspects that have helped us. The second one is the branch network because we have 14,000 branches, and we can cover almost the entire country.
CI: How has Poste Italiane expanded the functionality and range of its prepaid cards over the last few years, and which features/products are proving to be most popular with Italian consumers?
The most successful product was the standard version of Postepay which we positioned as a real general-purpose card, as a travel card so that young people in particular could use it during their travel abroad, and as an e-commerce card so that people could use it online. The boom of e-commerce was another key driver of our success. Previously people didn?t feel comfortable using credit cards or debit cards linked to a bank account for e-commerce, so we positioned the card through our communications campaigns as an e-commerce card so that people could use it very easily with trust on the web.
After the launch of Postepay, we realised the different usages of the card. We launched it as a general-purpose card but then we realised that there were people using the card for specific usages like betting online. We started diversification of our programmes and we launched Postepay Impresa, a sort of white-label card, so that other companies could ask for personalised prepaid cards with Postepay branding on it. They can personalise the card with their company logos. It?s sort of a co-branding proposition that they can manage through our online platform, where they can request or reload cards. This product has been used mainly by e-commerce companies who want to offer prepaid cards to their customers.
CI: Which fees (purchase, reloading etc) comprise the bulk of revenues from prepaid, and how have pricing structures changed over the last few years?
When we launched the product, we made a big decision to position our product as a low-cost product so that it would be more convenient for customers compared to our competitors? cards. We used a very easy fee structure. The card costs ?5 to purchase initially and it?s almost ?1 for all functions such as reloading and ATM withdrawals. It?s very easy for customers to understand. The biggest slice of our revenues comes from reloading and withdrawals. ATM withdrawals are something that is used mainly by young people who are receiving money from their parents. They basically use it like a wallet.
We haven?t made any big changes in our pricing structures, as we wanted to keep it as simple and as easy to understand as possible. On newer products such as corporate or transit cards, the fee structures are a little different because all these programmes are in partnerships with other institutions, with other companies, and that is reflected in the different fee structures for those programmes.
CI: Given that Italy has such a fragmented retail market, what are the prospects for retail closed-loop gift cards? Does Poste Italiane see any benefit from offering gift cards?
In our diversification process mentioned earlier, we launched in 2007 an open-loop gift card, and I can tell you that our main objective was only to complete the range of products that we were offering to our customer base. We positioned the product as a gift to give to someone else, instead of buying them a gift or giving money. We distributed a good number of cards, between 50,000-60,000, but that market was not a success and we are no longer offer that particular product. This is one of the negatives that came up in our focus groups. Our customers told us they didn?t want to buy a card, use it and then throw it away. So we changed it in 2008 into NewGift, and the value proposition of that is still as a gift card that you can buy and give to someone else, but it?s reloadable. NewGift came about in relation to the anti-money laundering directive, which allowed us to issue anonymous reloadable cards to the limit of ?2,500 per year. This card allows you to withdraw money and reload the card.
We analysed the closed-loop market but at the moment we don?t see it as a big opportunity for us. Maybe in future we will launch this kind of product, but it has sense only if in partnership with a very big retailer. In Italy we have a few retail chains but the market is very fragmented.
CI: It appears that there is a growing trend of prepaid issuers opting for the MasterCard platform in preference to Visa. What are the reasons for this? Is it better technology availability or processing power?
Over the last year MasterCard has made a huge investment in prepaid, and I think that the trend of new cards being launched on the MasterCard platform is the result of this investment. When we started we chose Visa because of the online usage of the card - in 2003 in Italy, debit was mostly Maestro which does not have huge acceptance online. We used Visa and I can tell you that it was and still is today one of our key drivers of our success. Since then, we have issued our NewGift on the MasterCard brand, and the result is we are very satisfied by the performance of the product and scheme acceptance.
CI: Given the very high growth rates for prepaid in Italy over the last four years, is the market about to approach saturation point, or is there still plenty of growth potential?
Every year in our marketing plans we make this point that the market is about to reach saturation, so we have to think about diversification and other strategies, and it?s something that of course is going to happen. What I can tell you is that growth is still going on, but we think that the market is going to be saturated in a few years. This is why we are thinking about other products like multi-function or multi-application cards. Our strategy is to address new markets where prepaid cards are not used, and how to combine prepaid functions with payment functions and other functions like access, transit, ID, or other products such as the Social Card.
CI: How do you see the prepaid market developing over the next few years, in terms of functionality and market competition?
We look at our competitors in the Italian market because we understand that banks, but not only the banks, perceive the real power of the prepaid market, and how it can help acquire new customers and cross-sell other financial services. We think that competition is going to get higher over the next few years, but especially in terms of new card functionality such as multi-functional or specific products for specific segments like gaming online. oday we have 5 million cards in the market so compete with us on the general-purpose market is a bit difficult.
The other trend is that the banks are driving prepaid cards that are sold as a bank account, examples of which include the Intesa Superflash and UniCredit Genius products, so that customers can receive and make money transfers and receive salaries directly onto the card. The key is the use of a prepaid card as a bank account.
CI: What is your view on how the prepaid market is regulated in Italy? Do regulators have a good understanding of the market, or what else should they be doing to help grow the prepaid market?
Around 2003 there was no specific regulation for prepaid products. In the years since then, we created together with the regulators and other banks the regulation for prepaid products. Banca d?Italia then designed a specific regulatory scheme for prepaid cards and all the products that were not specifically credit or debit. Today there are still some issues that are related to the Payment Services Directive, and related to distribution of prepaid cards from other networks, but we are working with other institutions to create a regulatory environment that can help the prepaid market and help customers to get the right products.
CI: How will the Payment Services Directive change the prepaid market in Italy? Are we likely to see the entry of rival mobile virtual network operators or non-bank players? How much of a threat do they pose?
For us it?s a big threat. The Payment Services Directive and all the new competitors could potentially bring about a completely new environment that would change the competitive landscape. To compete with a bank is completely different from competing with a telecom company or with a retailer. We are paying very close attention to the Payment Services Directive and how the market in Italy and elsewhere is changing, and what the big telcos and retailers are doing. Our intention is to compete where possible and to partner where possible. It?s true that the market is heading towards saturation point but on the other side it?s still true that there is room for other competitors. Competition can help to increase the growth of the prepaid market in Italy.
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