The Gen Y Power of Prepaid Reloadable and Gift Cards Work Together to Fill Age Gap

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1 The Gen Y Power of Prepaid Reloadable and Gift Cards Work Together to Fill Age Gap By Konrad Christensen TMG Retail Payments Product Manager Between the ages of 13 and 19, teens begin to make more of their own decisions. Everything from the daily choices like which pair of shorts to wear to the major decisions like which college to attend are all made during this crucial life stage. Unfortunately, community financial institutions (FIs) aren t always on the winning side of teen independence. 8.12

2 My own experience is an illustration of young people s tendency to leave the financial institutions they ve known from birth. A legacy credit union member, I never questioned my family s credit union membership until I got a job at the mall. Simply because one of the megabanks had a branch next to the store where I worked, I left that credit union to open a checking account with the megabank. The credit union had given me no reason to stay, so I didn t give the decision much thought. In fact, even referring to it as a decision, isn t entirely accurate; it was more like a kneejerk reaction, which is very often how teens behave. Credit unions and community banks know losing touch with this demographic is no longer an option. They understand that carrying a relationship from the teen years through young adulthood is crucial to the sustainability of their businesses. How to maintain those relationships, however, is less understood. Enter prepaid products. Tailor made for the challenge, prepaid cards can be the glue holding together an otherwise feeble relationship. Two prepaid products in particular reloadable cards and gift cards have the potential not only to solidify existing teen relationships, but also to draw in new Gen Y customers. Reloadable Prepaid Cards for Teens A community FI can market the features and benefits of a reloadable card all day long; but it s tapping into the emotional side of the equation that really sells the concept to a teen or to the teen s parents. Reloadable cards hold the key to satisfying the most important desire for teens independence. For parents, they deliver an entirely different, yet equally as valued, need protection. Reloadable cards give both generations teens and their parents exactly what they need. Independence comes in many forms, but for teens, financial independence is exciting (exciting for them, potentially scary for parents). Reloadable cards give both generations exactly what they need. Because reloadable cards offer overdraftfree access to their funds, teens don t have to ask Mom or Dad s permission before they spend, and they can do so without the risk of spending more than they have. Teen reloadable cardholders also have the freedom to make online purchases without asking for a parent s plastic. In the age of itunes and Facebook credits, this is a very big bonus for teens. Keeping track of those purchases in a modern way is also possible, given the technology behind today s reloadable card products. 2

3 TMG s ATIRAreload, for example, offers free text message services to reloadable cardholders, so checking balances is simple and accessible in a way teens prefer to communicate. 1 Reloadable cards offer the opportunity to keep an eye on the potential profitability of coming-of-age customers. Even with its direct-deposit feature, a reloadable card isn t likely to keep a teen from asking a parent for money. It will, however, make it easy for the parent to fulfill the request, even at a distance. Reloadable cards are ideal for parents with children traveling for spring break or summer camp. In the past, a parent may have been tempted to send a large stack of cash with the traveling teen to avoid any trouble that could arise from running out of money. Today, parents can feel secure in knowing such a situation can be quickly remedied by loading emergency funds onto a reloadable card something that can be done instantly online, in an issuer s branch or at many retail and convenience-store locations. TMG s ATIRAreload, for instance, can be loaded at any VISA ReadyLink merchant. For a credit union or community bank intent on keeping teen customers for life, the reloadable card offers the opportunity to keep an eye on the potential profitability of these coming-of-age customers. When the teen graduates high school and needs an auto loan but has no traditional credit score, the FI has more information on which to base their loan approval. If that teen loan applicant is a reloadable card carrier, the FI can easily pull income and spending pattern details, all data available through a reloadable card s backend reporting tool. The cards essentially allow teen customers to build internal credit with their community FI, giving them a very solid reason not to follow any kneejerk reactions to switch FIs. Speaking of potential profitability, reloadable cards provide issuers with an option for less-than-profitable checking customers. Depending on how often a checking accountholder uses his debit card, he may provide more interchange as a reloadable card user. From the customer s perspective, he may actually save money with a reloadable card. Habitual over-spenders or those who aren t capable of achieving checking account minimums may eventually tire of fees, even if they have opted-in to receive them. Introducing these customers to a reloadable card may allow the issuer to maintain what could become a mutually beneficial and long-term relationship. Gift Cards for Teens For their part, gift cards continue to be a preferred gift among teens. Again we are back to freedom of choice. Gift cards particularly open-loop cards offer the independence to select their own birthday, graduation or holiday gift. What s 1. Teens are the leading senders of text messages, SMS Marketing, January 23,

4 more, consumers have a high perceived value of gift cards. When asked by First Data whether a recipient would rather get a $30 gift or a $25 gift card, nearly 80 percent opted for the gift card. 2 Even as scrutiny of the prepaid market intensifies, the products themselves continue to evolve and improve. A few of the upgrades coming down the prepaid pike include EMV, mobile banking integration, auto bill pay and even rewards. An advantage gift cards offer parents is the inability to use them at ATMs. At first blush, this may look like a negative, but some parents are interested in monitoring their child s spending. This can be done with a reloadable card until the teen cardholder uses his reloadable card to access cash. From there, the paper trail goes cold. With a gift card, a parent can give a child access to a secure payment method that works at most major retailers online and off but doesn t allow for ATM use. As well, gift cards can be issued instantly. So for teens and parents who may have waited until the last minute to make their financial plans for a trip, a gift card can leave town with them, immediately after issuance. Given the above, it s easy to see why parents may be attracted to gift cards, but how does this translate to retaining relationships with the Gen Y market? It all boils down to branding. As recipients of community FI-issued gift cards, teens continue to associate their credit union or community bank with financial freedom. By continuing to press on that emotional pressure point, the community FI maintains a positive position in the life of an impressionable young person. Is there room for both? A fear of some financial institutions particularly those new to prepaid products is that offering a reloadable card could steal gift card sales. When in fact, reloadable and gift cards complement one another. More than 80 percent of TMG s prepaid clients offer both reloadable and gift cards to their customers. Because both are managed through the same technology interface, cross-selling is a breeze for frontline staff. What s more, our data shows that issuers who offer both actually saw a marked increase in sales. On average, TMG clients with both reloadable and gift card programs experienced a 36-percent increase in gift card sales in By comparison, TMG clients only offering gift cards experienced a 10-percent increase in 2011 sales. Not only is there room for both at a community FI, there is a need for both. That s because each prepaid product is designed for a unique strategic purpose. While gift 2. First Data Releases 2011 Consumer Gift Card Insights White Paper, Get Debit, December 15,

5 Of the 13 to 19 year olds in your customer base, how many are life-long fans of your FI? cards are generally used to satisfy the short-term needs of a customer, reloadable cards are designed to begin or to solidify a long-term relationship. Of the 13 to 19 year olds in your customer base, how many are life-long fans of your FI? It s time to develop a plan for not only finding out, but for planting your FI firmly on the winning side of teen independence. ABOUT THE AUTHOR Konrad Christensen is retail payments product manager for The Members Group (TMG). As such, Konrad is responsible for managing TMG s prepaid line, including the Coopera Card, ATIRAgift, ATIRAreload and ATIRApay solutions. His marketing expertise, honed in a series of product management positions, is currently helping TMG s credit union and community bank clients bring prepaid solutions to market. Konrad holds a bachelor s degree in marketing and organizational psychology from the University of Northern Iowa. He also holds an MBA from Iowa State University. 5