The term “breakage” within the payments industry refers to the dollars left on a prepaid card post card expiration.  Those dollars are either funneled to the Program Manager (who constructed the initiative), or back to the company offering the card to their particular constituency.  Generally speaking, people outside the prepaid industry (consumer groups) have an erroneous opinion on how breakage works.  Here are some thoughts….

• First, a network branded card (Visa, MasterCard) offers the cardholder choice.  The cardholder can spend the full value of the card wherever they want.  The only constraint is that they have to spend the entire load before the card expires.  Evidence suggests that the majority of cardholders are happy to trade the card’s ubiquity for the limited time restriction. 
• Industry statistics demonstrate that less than 8% of the funds on a network branded prepaid card actually break.  As consumers become more prepaid savvy, I expect that percentage to decrease over time.
• Generally speaking, only a single value prepaid card will actually break.  Reloadable cards (usually utilized in employee or partner programs) do not factor breakage as a source of revenue.  Once a reloadable card expires, the cardholder is usually reissued a new card, and their available balance is moved to that card. 
• It is costly to support a card on a processor.  The technology and cardholder services infrastructure are significant investments for companies in the space.  Card breakage helps underwrite those costs.
• If a cardholder has funds on a card post expiration, and they want to access their monies, they are reissued a new card less a nominal processing fee.
• Without breakage revenue, consumers may not see the plethora of acquisition/retention campaigns available to them.
• Companies initiating prepaid campaigns are now infusing cross-selling/up-selling strategies that overtly suggest what products the cardholder should spend their monies on. This tactic looks for the incremental consumer spend as a way to judge a program’s ROI.

Anyone looking to learn about the prepaid card space should visit the NBPCA website. You will find a plethora of relevant and objective industry information available.  

For a company looking to create cost-efficient, targeted marketing campaigns, the statistics derived from the use of a prepaid card is invaluable.  In a consumer promotion, the company offering the reward can easily create the profile of their buyer through the card activation process.  In order to make the card spendable, the cardholder reveals critical demographic data.  Once they begin to utilize the card, the spend data accumulated, clearly outlines where and when the money was spent.  The power occurs when combining the demographic data with the spend information.  The solution created is a decision support system that can be immediately levered against future marketing efforts.  The output suggests:

• What customers are ready for cross-selling/up-selling offers. 
• What customers are vulnerable to a competitor and could attrite. 
• How to improve responses to promotions thereby improving ROI. 
• When is the best time to message the customer. 

Companies like Clear Peak in Englewood, Colorado, lever the data and create predictive modeling tools that provide immediate insight into a business and its customers.  A sustainable competitive advantage is created when a business captures the knowledge, then utilizes it to convert prospects to customers while protecting their client base from intrusion.  

Prepaid, combined with deep and relevant analytics, delivers this edge. 

Prepaid is still in its infancy as an industry.  Companies currently situated in the space are aggressively jockeying for market share.  Many times a subset of these firms make outrageous capability claims in order to solidify a transaction. 

Organizations looking to prepaid to solve complex business issues must thoroughly evaluate all potential providers before making financial commitments.  The solutions outlined by many prepaid companies often rely on third parties in order to execute their programs. 

Below are many components of the prepaid supply chain that will ultimately impact the customer/cardholder experience as well as the overall investment in the solution. 

• Program Management: The ongoing consultation that occurs between prepaid professional, and corporations looking for a potential solution. 
• Integration: APIs used to exchange data between all organizations involved….what cardholder has earned what monies, when and how. 
• Creative Services: Utilized for the design of a custom prepaid card.  They must adhere to the numerous constraints required by the associations.
• Card Manufacturing: Raw plastic is converted to a fully functioning prepaid card.  This card includes an encoded magnetic stripe, custom logos and embossed personalization. 
• Card Fulfillment: Shipping to the cardholder or to the corporation.
• Transaction Processing: Approves or declines every transaction that is sent to via MasterCard/Visa (and the merchant).  Eventually provides detailed card reporting. 
• Compliance/Regulatory: PCI/DSS compliant along with being a secured MasterCard/Visa facility. 
• Cardholder Services: Every cardholder must be able to access card information through an IVR, Web or live operator.
• Customer Service: Customers must have an assigned service team that they can contact in order to service a complex program.   

Each of these functions are a cost and service center to the company evaluating prepaid.    It is critical that a buyer understands who is ultimately responsible for the program should things go awry.  Furthermore, it would behoove a buyer to understand the benefits of working with a vertically integrated provider where all of the functions listed above are controlled by one vendor.  Single sourcing all of the functions associated with prepaid, guarantees a program is delivered cost effectively, securely and in a timely fashion.