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The Prepaid Travel and Transit Opportunity
VRL Financial News Publishing, Sep 2010
The modern tourist is seeking a more globally accepted, secure and convenient alternative to traveller’s cheques and foreign currency. As a result, industry experts confidently forecast that prepaid travel products will become one of the most successful payment markets in Europe.
Order this new report for indispensable insight into the numerous benefits of prepaid travel cards for new and existing issuers of travel money.
Prepaid solutions represent one of the most innovative propositions in the payment industry due to their inherent flexibility, convenience and applications across a broad range of industry sectors. It's no wonder that banks, payment networks and programme managers have devoted such significant resources and investment into promoting their usage, but each industry vertical requires significantly different business models as end-user groups require different needs, and a one-size-fits-all approach will quickly doom some programmes to failure.
In this report we look at two prepaid categories, travel and transit, which although can be broadly classed as similar, actually have very different characteristics and functionality. The schemes discussed in this report concern themselves with the need for travel money, support services for travellers and the means by which transit tickets may be purchased and used. Each of these prepaid card programmes meets a very different need, and exemplifies a core application in the sector.
The first half of this report deals with travel cards, and the second with transit cards. Despite the inherent differences in each category, there is no doubt that prepaid as a solution is ideally suited to serve both, and in this report, we examine the factors that have made prepaid such a win-win proposition proposition in these sectors.
Part One examines the evolution of prepaid travel cards and how they have come to replace travellers cheques, which although have dominated the travel money market for the last 100 years, struggle with issues of declining usage and acceptance.
Part Two looks at how the market size and opportunity for prepaid travel solutions and the opportunities that industry stakeholders can reap by implementing such solutions.
Part Three consists of prepaid travel solution studies of programmes which have been successfully implemented.
Part Four outlines the evolution of prepaid solutions in the transit space and how transit agencies have used them to displace low value cash transactions.
Part five consists of prepaid transit solution case studies, including some of the best known and established schemes which have acted as a template for other schemes around the world.
Study prepaid transit solutions case studies, including Travelex and Swiss Banker’s Travel Cash Card
Read this report to:
- Learn about the evolution of the prepaid travel card market
- Gauge market size and business opportunities for the prepaid travel card market
- Read studies of successful prepaid travel solution programmes
- Assess the evolution of prepaid solutions in the transit space
The evolution of prepaid travel cards
Before delving into why prepaid travel cards have become such a hot proposition, it is useful to look at the predict that they are rapidly replacing - the travellers cheque. Although these have been around for nearly 250 years, and have dominated the worldwide travel money market for much of that time, they are quickly giving way to other forms of payment such as payment cards (and of course cash). Granted, travellers cheques have proven to be convenient for consumers and relatively secure, but they also carry with them some inherent problems that have made other forms of payment increasingly popular.
There has been a steady decline since the early 1980s in the number of travellers cheque issuers worldwide. Many banks have withdrawn from issuing travellers cheques altogether and instead now act as sales agents for another issuer. It is estimated that there are now fewer than 100 issuers worldwide.
It is therefore not surprising that consumers are turning to alternative payment methods such as payment cards instead of travellers cheques, and there has been a noticeable decline in the number of outlets that will accept them.
Despite the growth seen in all forms of debit, credit and charge products by the major marques, the continuing use of the travellers cheque product and foreign currency purchases still represents a significant substitution opportunity.
The convenience factor
The value of prepaid travel cards to consumers is based on convenience. The user needs to carry and safeguard only one card number, not many cheque numbers. Additionally, several cards may be associated with one account, allowing users to travel with a replacement card, and thereby eliminating the need, if the card is lost or stolen, to have replacements mailed or picked up from a physical location.
Travel cards can be used anywhere the network's cards are accepted, including ATM's, and generally are accepted at more point of sale locations than are traditional travellers cheques.
The market size
Recent research conducted by an independent source on behalf of MasterCard shows that the global predicted total spending figure on prepaid travel cards is expected to reach $18 billion by 2010. this represents 4.7 percent of the anticipated $380 billion total spend on consumer travel. In other independent research, conducted by European business and technology research and advisory company PSE consulting on behalf of MasterCard, it is anticipated that the total European turnover for prepaid travel products in 2010 will be $22.3 billion, which represents 15 percent of the forecast European prepaid card market.
The major target markets for expenditure on prepaid travel products are likely yo be for consumers in Germany (40 percent) and the UK (31 percent), with the remaining markets only accounting for approximately 30 percent across the board.
Prepaid travel card case studies
- Swiss Bankers Travel Cash Card
- Travelex
The evolution of prepaid transit solutions
The concept of prepaid for use in the transit and ticketing sectors is nothing new – various forms of prepaid ticketing applications are in use across several regions and have been for several years. What is new is that they are now taking the form of prepaid cards that incorporate dedicated transit applications, which has led to the rise of multi-purpose prepaid cards. Most incorporate contactless payment technology, and as standards and interoperability increase, the scene is set for the convergence of prepaid transit and payment functionality to become much more widespread.
The benefits of contactless payment for use in transit are well known – ease, convenience and speed through toll or ticket gates. Early impressions indicate that consumers overwhelmingly welcome the functionality such cards provide, but getting the cards to consumers has been problematic due to technology and infrastructure hurdles. However, market activity is picking up pace and contactless payment card roll-outs are well under way in the US, Europe and Asia-Pacific.
The estimated market size
Another factor particularly affecting European banks is the relatively small slice of prepaid spending that transit spending comprises, and the fact that prepaid transit is in its infancy in Europe. According to UK research consultancy PSE Consulting, by 2010, transit will make up an estimated €1.04 billion ($1.43 billion) of the European prepaid market segment turnover. According to PSE, prepaid transit is a low spend solution and the low average value per transaction is likely to present a margin challenge to any provider offering prepaid solutions. However, the Federal Reserve of Boston estimates that in the US, transit is a $10 billion micropayment opportunity.
Transit card case studies
- Octopus Card, Hong Kong
- T-money, South Korea
- Stagecoach, Liverpool, UK
- MTA New York City Transit, (NYCT)
- Los Angeles County Metropolitan Transit Authority (LA Metro)
- Utah Transit Authority (UTA), US
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