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Viewing report
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Prepaid Market Assessment: Germany, Austria, Switzerland
Global Prepaid Exchange, Feb 2011, Pages: 53
Prepaid is an emerging market with many application areas, roles and companies whose operational areas and borders between them are not clean cut. It is not unusual that a company will offer a range of products and services spanning multiple areas of the value configuration. Compared to credit and debit cards, prepaid is a niche industry – which is fragmented into a number of sub-niches.
The major prepaid opportunities in the DACH region are Government disbursements, Transportation, Gifting, Corporate incentives & benefits, each of which current market potential are large and growing. The sector likely to see strongest growth in the next five years (15-20% annually) is Government prepaid. Other categories expected to see double digit growth are Gifting, Corporate incentives & benefits, Transportation, General purpose reloadable and Remittance. Four applications are expected to be open loop exclusively: General purpose reloadable, FX & Travel, Remittance and Payroll, whereas two are expected to be closed/restricted loop only – Fuel and Transportation.
Comparing the application potential per country, by its sheer volume, Germany represents one of the largest potential markets for prepaid in Europe. In the DACH region, Germany constitutes 73.0% of the market opportunity, Switzerland 16.7% and Austria 10.3%. The size of the market opportunity for each prepaid application differs between the countries based on a number of factors, including retail sector concentration, payment instrument preferences, size of the unbanked population, taxation and regulation, and a selection of other criteria.
There are no prepaid applications rated at the Mature stage of the product life cycle in the DACH region. Applications such as Gifting and Corporate incentives & benefits have been around for more than ten years and are still experiencing strong growth. General purpose reloadable prepaid is a fast growing area with rapid increase in the number of brands on the market, and the competition is rated as High, as is the case with Gifting with a large number of retailers moving from paper to plastic prepaid products. The coming of third party distribution through “gift card malls”, where German-based Retailo is a key player, has also accelerated the growth and competition in the gift card sector. Payroll cards have yet to be introduced at a sizable scale in the DACH region, but exist in other country markets, the key inhibitor to success being the low number of unbanked due to the ease of obtaining a bank account.
Prepaid is often an alternative to existing legacy solutions and existing business relationships. It can require new infrastructure, changing of legacy systems, and education of buyers and recipients. Some applications face not only competition from other prepaid companies, but also from strong substitutes and existing value configurations. Certain prepaid applications face competition from other payment instruments as well, including debit cards, credit cards and cash. Especially the German propensity towards cash payments is perceived as a potential obstacle for some areas of prepaid. Not only consumers, but corporations and government institutions also must be educated and convinced of the prepaid value proposition.
Up until the shift of the millennium paper was the dominant prepaid format; then plastic cards began to claim market shares. From 2005, there has been a major shift in formats used with increased speed in the move from paper vouchers to plastic cards. In 2010, it is estimated approximately 55% of prepaid in Europe takes place on plastic cards. Along with the increased uptake in plastic cards, from 2005 the concept of virtual prepaid solutions slowly started to gain traction. Virtual prepaid encompasses a range of technologies used to identify and redeem value, including manually entered codes, barcodes/2D barcodes and NFC, which can be distributed through SMS, e-mail or other channels. It is predicted that virtual cards might claim as much as 20% market share in prepaid by 2015, while plastic will constitute 60% of the prepaid market, leaving 20% still on paper vouchers.
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