Mercator's 4th Annual Prepaid Closed Loop Market Assessment

This report provides an overview of spending in each category and delivers details on the dollars loaded in each segment, the growth over the last four years, and the market dynamics that impact each segment. This report is unique in that it clearly defines the 33 market segments that are measured and delivers a historical perspective on these markets using data that goes back to 2003 - delivering the only consistent data set that measures the growth and dynamics of the prepaid industry over a period of four years.

This report finds that:

• $171.18 Billion was loaded on Closed Loop Prepaid Solutions in 2006, an increase of 13.9% over the 2005 spend of $160.29.
• Closed Loop Gift Cards used for Consumer Incentives grew by 271% while campuses across the nation increased the load placed on campus cards by almost 8%.
• The Digital Content Category had a great 2006, growing overall by $1.49 Billion. This represented a growth of 37% for Digital Media, 35% for Net Phones, and 45% for Games and Ring Tones.
• The In-Store Gift Card market segment grew by $6.98 Billion while the Distributed Gift Card market segment, driven by the rise in prepaid malls, grew a total of more than 87%.
• The use of Closed Loop Prepaid products to support Employee Benefits grew by 9%.
• The Petroleum Industry, late to the prepaid market, finally introduced gift cards and established a presence in their own stores. The market rewarded them by buying just over $1 Billion in cards - yet this industry remains a laggard when it comes to embracing distributed gift cards, leaving a huge opportunity for Network Branded cards on the table.
• The Telecommunications Category also performed well in 2006, posting a 22% gain in Prepaid Mobile and 7% for Prepaid Long Distance.

Tim Sloane, Director of the Debit Service for Mercator Advisory Group and the author of the report indicates that the closed loop prepaid industry continues to have significant headroom for additional growth, but is also confronting a major challenge from Network Branded solutions in some markets.

"In Store Gift Cards and Distributed Gift Cards have significant room for additional growth, and increasing reach and breadth of product category, combined with strong consumer adoption, will continue to drive that growth. At the same time, Restricted Acceptance Networks implemented with Network Branded Cards represent a very real challenge to closed loop solutions. This threat can be turned into an opportunity by early action, but with growth rates that seem to indicate smooth sailing ahead it is likely many will miss the signs of an impending storm."