Prepaid Market Assessment: South Africa
Global Prepaid Exchange, September 2011, Pages: 35
The prepaid market is experiencing rapid growth worldwide. Unlike credit or debit cards, prepaid spans a myriad of different application areas, each with unique characteristics and success criteria. From open-loop Payroll cards and Travel/FX cards to retailer-issued closed-loop gift cards, and solutions for government disbursements of social benefits, these products are increasing in prominence because users find real benefits in adopting them and issuers see profit potential in their expansive growth.
While prepaid is a global phenomenon, national and regional prepaid adoption shows significant differences across countries. For example, the US has seen rapid growth in gift card adoption over the last 10 years; prepaid has then diversified into other areas such as government disbursements and corporate incentives. In the UK, a similar pattern of development has been observed. In the Italian prepaid market, general purpose prepaid cards and government benefit payments are the major drivers, whereas prepaid in France is evolving from B2B towards B2C with its roots in the meal voucher industry. In India, Payroll cards which often double asFX cards for expatriate workers are currently experiencing strong growth. Each country is unique with different economic, cultural, regulatory and technological aspects that combine to shape the structure of the prepaid market.
The report first provides an introduction to prepaid through an overview of the prepaid value configuration. It then describes 10 prepaid applications and a) the benefits provided, b) the drivers and inhibitors of prepaid growth, and c) the competitive situation for each application in South Africa: Gifting, Government Disbursements, Corporate Incentives and Benefits, Payroll, Travel and FX, Transportation, Fuel, Remittance, Reimbursement, and General Purpose Reloadable. Having set these premises, the report provides estimates for the size of the market opportunity for each of the prepaid applications, and the share of card value that is assessed to be on closed and filtered loop vs. open loop products.
An article targeted at retailers and non-retailers explains why and how gift cards should be implemented as part of an overall marketing strategy, rather than viewed as a mere payment instrument and source of breakage.
The report also provides a Company Directory, a guide to players in prepaid in South Africa, before proceeding with a section aimed at foreign companies seeking to establish themselves in South Africa, including a review oKYC (FICA) requirements. Finally, the report provides descriptions of a collection of sample prepaid programs inSouth Africa, and presents a collection of Global Best Practice Programs.
Two appendices are included: A Prepaid Glossary to explain the industry terms used in this document, and South Africa in Figures – a country fact sheet with background data for enhanced understanding of the country’s size and macro conditions.
Executive Summary
Introduction
The Prepaid Value Configuration
Prepaid Applications
Benefits Delivered by Prepaid Applications
Drivers and Inhibitors to Prepaid Growth
Competitive Landscape
Prepaid Market Size Forecasts
Retailer Case: Prepaid Category management
Company Directory
Doing Business in South Africa
KYC - Summary of FICA Identification Obligations
South Africa Sample Card Programs
Global Best Practice Programs
Appendix A: Prepaid Glossary
Appendix B: South Africa in Figures
Prepaid is an emerging market with many application areas, roles and companies whose operational areas and borders between them are not always clean cut. It is not unusual for a company to 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.
South Africa represents a current prepaid market opportunity of ZAR 29.4 billion. The major prepaid opportunities are Government Disbursements, Consumer Gifting, Corporate Incentives & Benefits, and Payroll - each of which has a current market potential in excess of ZAR 2.0 billion annually. The estimated top five opportunities in South Africa (measured as share of potential card load value) are Government Disbursements (29.9%), Consumer Gifting (18.1%), Corporate Incentives & Benefits (13.4%), Payroll (12.2%) and Fuel (6.7%).
Like advanced prepaid markets such as the US and UK, South Africa has a growing prepaid gifting industry. Consumers and businesses can choose (primarily magnetic stripe) gift cards from a wide variety of brands. As retailers learn more sophisticated approaches to gift card management, further growth is expected. Several banks have also launched open loop gift cards and incentive products, although traditionally they struggle with sales unless they collaborate more closely with retailers to gain access to a distribution network.
Third party distribution is currently in its infancy, but when gift card malls are rolled out in major retail destinations, prepaid sales are expected to grow. This applies not only for gifting, but also for other prepaid categories such as general purpose cards. As a comparison, in the US approximately 1 in 5 gift cards are sold via gift card malls, and open loop cards are among the most popular brands due to their versatility.
A number of prepaid payroll products have been put on the market. These offer an alternative to the use of cash and checks for employers and employees in the unbanked population, which accounts for 40% of the population age 16+ years. There are also a growing number of general purpose prepaid products on the market, often marketed as “prepaid debit” or “prepaid credit” cards to serve the otherwise unbanked segment.
Money transfer services fill an important function in South Africa and there are many alternatives available both for cross-border remittances, and for intra-country money transfers: bank transfer, mobile P2P payments, more traditional money transfer networks (such as Western Union and MoneyGram), retailer networks, and less formal channels (such as taxi drivers and hawala networks). Remittances using account-based prepaid money transfer services where funds can be accessed for multiple transactions via card or other format face strong competition from single payout services.
The Gautrain uses a state-of-the-art contactless transportation card. With pilots for more transportation cards underway, electronic prepaid transportation solutions may gain more traction and attract more players. There is also a relatively young market for Travel/FX cards. Currently there are few known initiatives for government disbursement and fuel prepaid solutions, but that may change in the years to come if fuel companies and governments are educated in the benefits associated with such programs, learning from experiences in other markets.
Countries with a significant number of impoverished and unbanked residents tend to offer more services prepaid. Prepaid can switch the risk from the supply side (sellers) to the demand side (buyers), thus opening up a greater market – extending services to otherwise perceived high-risk segments not eligible for pay-later alternatives. In South Africa, power suppliers in both the public and private sector offer prepaid electricity services with top-up options, and a prepaid health service currently is being rolled out with medical vouchers storable on a phone. Only imagination and buyer willingness to adopt prepay restrict what can become a prepaid service within a framework of cultural, technological and regulatory conditions that apply to a given market.
- Absa Bank
- ACET Processing
- Bankserv
- Bidvest Bank
- Capitec Bank
- DrawCard
- Edenred
- Face Technologies
- First Data
- First National Bank (FNB)
- Intelligent Card Production Systems Limited
- Investec
- Liquid Telecom
- MFS Africa
- Nedbank
- Net1 Technologies
- Opengate Technologies
- PayU
- Pick’n Pay
- Standard Bank
- Sybrin
- Transact24 Limited
- Triloq Payment Services
- Traderoot
- Tutuka Software
- Uwin Iwin Incentives
- Veneka Solutions
- Woolworths
- Xantium Integrated Solutions
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