An insight into the industry and why you should not be paying % upload charges?

You may have recently distributed a pre paid award card to your employees or channel network or maybe you are considering it, if so you will undoubtedly have a few questions.

There are two different types of pre paid award cards – open loop and closed loop. Both open and closed loop cards are in essence the same as the credit cards in your pocket, the difference being they cannot go into a negative balance. An open loop card can be used at all MasterCard or Visa outlets. However, a closed loop card has been locked down to a list of retailers who are willing to pay the agency concerned a % kickback.

Employee benefit or salary sacrifice programmes aside there is only one reason any client chooses to work with closed loop cards, and that is agency cost. Closed loop cards offer a limited number of well known high street brands which de-motivates participants and calls into question whether agencies are truly interested in motivating your people.

The key question is why are other UK agencies offering different charges for closed and open loop when they each use the same technology and incur the same cost.

To answer this we need to explore just how MasterCard and Visa card processors charge for their products and services. Card processor’s require any program manager to commit to an annual minimum spend of around £100,000. Card processors charge less than 1p per card transaction or load, meaning any program manager needs to invest heavily in subsidising this cost during growth.

As far as we know there are no UK agencies that have entered the market as program managers. All agencies including Improve UK Ltd are working with program managers be they gift, expenses or foreign currency specialists. To make their profit the program managers share their fixed commitment with each of their clients, often asking for £20-25,000 annual minimum commitment. They also increase the individual card transaction and load fees from less than 1p per line to around 10p.

The interesting part is there is no difference in charges from a closed loop card to an open loop one, they are exactly the same. Nor do agencies inherit a % charging model from their program manager, so why do most package their open loop card charges with 4-10% upload fees?

The answer is simple, many UK agencies have grown their business around multi redemption gift vouchers or bonds and open loop cards are a direct threat to these products. This leaves the agencies with the problem of having to charge clients a % fee to replace their lost retailer commission, a business model that is not sustainable.

Many industry specialists state open loop cards are superior products with international reach, so maybe there is an argument for these costing clients more, open loop cards are indeed superior products. However with program manager set up costs now as little as £30,000, technically aware businesses across this and other related industries are accessing this market relatively easily.

The pre paid award card market will soon be saturated, which is great news for clients.

Improve UK have shown with the Freeload award card that a fixed card cost covering a lifespan of two years is profitable whilst also giving clients a highly cost effective card program. This is only made possible by the use of fully automated processes and an industry leading cardholder website, reducing administration and card load resource to a minimum. Giving your participants a single cardholder interface that removes traditional chip and pin letters and telephone activation whilst providing instant balance and transaction access.

The industries continued shift towards online and card based awards exposes any non-solution based agency in a rapidly changing market. Improve UK Ltd offers clients a proven business model with people who understand the industry and your ideas.

For more information on pre paid cards, please contact 0161 438 6010.