June 11, 2004

Prepaid Channel

According to analysts, this prepaid distribution method will dominate over the long term
The kiosk Channel
According to analysts, this prepaid distribution method will dominate over the long term.
by: Vineeta Kommineni
Kiosk defined

Frost & Sullivan defines an interactive kiosk as a self-service computer-based unit, housed in an enclosure, whose primary interface with the customer is a monitor that may or may not be touchscreen based. The kiosk can be stand-alone or networked, and the monitor may or may not be touchscreen based. The accent is on self-service and interactivity of the unit.

The year 2003 marked the beginning of the revival of the fortunes of the interactive kiosk industry. Recent syndicated research estimated the market at $464 million, a surge of over 21 percent from 2002. Applications such as airline self-check in, retail self-checkout, ticketing, online banking, car rental return, bill payment and product information kiosks are driving usage of kiosks and, as a corollary, augmenting ROI and encouraging investment in the self-service industry.

This article examines the suitability of kiosks for vending prepaid services by evaluating the relevant methods of distribution such as POSA, online, ATM and SMS. For this article, prepaid services encompass prepaid long distance cards, replenishment of prepaid wireless accounts, activation of loyalty cards and retailer store cards, and reloading of stored value cards such as gift cards and prepaid debit cards.


While the traditional points of distribution for prepaid long distance services have been the bodega, convenience store, liquor store or cafeteria, for prepaid wireless it has been the wireless carrier’s store, as the initial candidate was a consumer who had been turned down for a postpaid cellular account.

The demographics of the prepaid user is changing from the credit-stressed and unbanked to include low or sporadic users and contract-averse segments such as tourists, business travelers and those with limited discretionary income such as youth. Accordingly, electronic stores, convenience stores, pharmacies, bookstores and grocery stores now offer prepaid services.

When it comes to distribution models, scratch cards approximate 22 percent of purchases in the prepaid services market. Scratch cards are easily concealable, prompting a high incidence of customer and employee pilferage.

These cards also involve high manufacturing and distribution costs and are printed in large batches. As a result, they may remain in circulation for an indeterminate period of time, preventing service providers from adopting uniform marketing strategies, such as the launch of a new brand, for example. Consequently, this is a rapidly declining model.

Point-of-sale activation (POSA) that uses point-of-sale (POS) terminals to activate or recharge prepaid services is estimated to represent 73 percent of prepaid card and prepaid wireless purchases. The terminals usually connect via dial-up to the POSA host and, depending on the technology used by the service provider, the cashier either swipes a card with an inactive PIN for activation or requests the PIN and usage information that is printed on a receipt for the customer.

In Europe, prepaid service providers also issue magnetic-stripe cards that are swiped for recharge against the amount rendered at the register. Another method of recharge uses offline POSA devices that print PINs onto blank cards.

POS convergence of debit, credit and prepaid service activation in a single terminal is rapidly increasing, notwithstanding the additional investment required from the retailer. However, Frost & Sullivan expects the share of this method of distribution to decline steadily over the medium to long term of the forecast period in favor of kiosks, online, ATM and SMS-based replenishment, in that order.

Recharge trends

Online replenishment currently accounts for around 2.5 percent of prepaid card and prepaid wireless purchases, while SMS, ATM and kiosk-based replenishments account for less than 1 percent each.

The proportion of online and SMS replenishment is expected to increase, albeit marginally, over the medium to long term. Most prepaid users are unbanked and unable to take advantage of e-commerce or m-commerce. In addition, e-commerce demands e-literacy, and m-commerce is yet to cross a number of technological hurdles. Currently, European mobile service providers including Cesky Mobile (Czech Republic), Sunrise (Switzerland), Telefort (Netherlands) and France Telecom offer SMS recharge service.

Past studies have shown that a cashier prompting the customer to replenish his wireless account significantly influences his decision. A timely cue to the customer in the form of an SMS message informing him of his prepaid account balance and suggesting replenishment can be similarly effective.

Payment processors EWI Prepaid, Euronet and Boston Communications Group (bcgi) have developed PinExpress, PaySpot and Wallet Watch, respectively, to enable replenishment of prepaid wireless accounts at ATMs. E*Trade Access is provided service by bcgi, while Euronet is partnering with ATM manufacturers such as Tidel and Triton. EWI prepaid has two major U.S. banks readying for deployment of ATMs supporting prepaid wireless services. Co-OP Network and U.S. Bank currently offer prepaid services through their ATMs.

Though ATMs occupy prime real estate, most do not have cash acceptors, and while this barrier is not insurmountable, easing it involves considerable capital outlay and is unlikely in the short to medium term.

Why kiosks?

Kiosks not only combine the advantages of the distribution routes discussed above but also minimize the disadvantages that each pose. As with online, SMS and ATM routes, kiosks lower distribution costs for the prepaid service provider while providing the benefit of cash transactions.

As with POSA, kiosks offer unlimited virtual shelf space, eliminate inventory and card production and delivery costs, minimize customer and employee pilferage, provide real-time sales activity reports and facilitate offering products of multiple service providers.

They also can act as information repositories answering questions such as: "The best card to …?" "What are the connection fees?" "Do you have a card with no surcharges?" "How many minutes does this card have?"

In a retail environment, the cashier is focused on ringing sales and moving the customer through the transaction as quickly as possible. Also, high turnover of customer-facing employees leaves minimal time for product training.

Kiosks also provide up-sell and cross-sell opportunities to customers in a nonintrusive way. They can be available 24/7 and provide a consistent customer experience while reducing lines at the cash counter. Kiosk interface can be designed to interact with a customer in his native language. For example, the Blackstone portal has both Spanish and English interfaces.

Typically, kiosks tend to be located in high-traffic areas such as grocery stores, malls, airports, larger convenience stores and big-box retailers that are convenient touch points for the customer. In locations like malls, airports and university campuses that don’t always have a store with a cashier, the kiosk becomes the store.

In addition, kiosks can function as a conduit for delivering focused promotional campaigns. Because payment is made up front by the prepaid customer and the segment was not considered lucrative until recently, service providers have not concentrated on gathering contact information or drawing a psychographic profile of this particular segment.

However, the northbound ARPU of prepaid customers and high rate of churn has created an insatiable appetite for wireless service providers to know more about this segment. Customers can be persuaded through promotions to register at the kiosk, and the information can be used toward targeted communication to establish brand loyalty or educate customers on value-added services such as SMS that swell ARPU.

The prepaid kiosk can also be used to print coupons earned by the customer for redemption at the store by swiping the loyalty card. The customer no longer needs to hang on to the mailed coupons. Eventually, customers used to swiping their loyalty cards at the kiosk to check for coupons earned will minimize mailing costs. Mailing costs cannot be totally nullified as certain levels of direct marketing need to be continued in order to maintain a personalized relationship with the customer.

The third-party model

Partnering with third-party kiosk networks such as Coinstar, Blackstone or retail store-owned kiosk networks such as Circle K’s Zaplink and 7-Eleven’s Vcom kiosks is an ideal option for prepaid service providers.

First, building a network of kiosks involves significant capital outlay. The cost per kiosk that has a custom-built enclosure, custom application and industrial grade components ranges between $8,000 and $12,000.

Second, considering that the key target segment for prepaid services is the cash-based customer, these kiosks need to be fitted with bill and coin acceptors. Among the challenges posed are maintaining the unattended kiosks and ensuring maximum uptime.

Coinstar Centers

The Coinstar Center is a prime example of the third-party kiosk model for prepaid services. Coinstar, the dominant player in the coins-to-cash niche of the kiosk industry, is retrofitting its nearly 11,000 centrally networked coin-counting kiosks with modular hardware and software components into a flexible and convenient distribution point for a wide range of customer self-service transactions under the brand name Coinstar Centers.

Customers can replenish prepaid wireless accounts of Alltel, AT&T Wireless, Cingular, T-Mobile and Verizon and reload prepaid Truth MasterCard cards. Employees of participating companies can obtain printed wage statements, balance inquiry and payroll cash vouchers.

In compliance with the "know your customer" standards, card association-branded cards such as Truth MasterCard are embossed with the cardholder’s name in order to tie every transaction to a known cardholder. Accordingly, the cards are mailed to the customer and not dispensed at the kiosk. Since the Coinstar Centers are used for loading and not unloading cash, the fraud exposure is expected to be significantly lower.

Currently, nearly 700 Coinstar Centers located primarily in supermarkets offer prepaid services. New smaller footprint versions of the Coinstar Center, ideal for tighter retail spaces, focus on prepaid services without coin counting. Over 150 Coinstar Prepaid Centers have been installed in c-stores, check-cashing outlets and college campuses.

The Coinstar kiosks do not return change to the customer. For the Truth MasterCard card, the inserted amount is credited to the customer’s account after deducting the applicable fee. For prepaid wireless, prepaid long distance, mobile phone ring tones and graphics and prepaid online games, the purchases are made in set denominations. After tax, Coinstar accepts the amount to the nearest dollar as a convenience fee, and the balance is given to the customer on a receipt as a credit toward the next purchase. This restraint is not expected to significantly influence sales at the kiosk.

Coinstar’s platform flexibility enables its kiosks to adapt to new product categories that are important to consumers and retailers. The company’s strategic plan is to be a universal replenishment location for all prepaid services, including prepaid cash cards, gift cards, prepaid long distance and other stored value cards.

Blackstone portal

Another turnkey prepaid services kiosk vendor is Miami-based Blackstone, a distributor of prepaid long distance, stored value and prepaid wireless products through over 300,000 retail locations and a marketer of POS terminals.

Blackstone uses a variety of business models for its Prepaid Stop kiosk that include leases, purchases, rentals or shared revenues. Apart from vending magnetic-stripe prepaid gift and store cards via an attached dispensing unit, the Blackstone Prepaid Stop can also print prepaid gift and store cards onto thermal cards. The kiosk can return change to the customer when available.

The Prepaid Stop offers prepaid wireless services of AT&T, Cingular, T-Mobile, TracFone and Verizon, and regional carriers AirVoice, AllTell, Beyond Wireless, Boost, Hargray, i-wireless and Omni Prepaid. The service has been deployed in supermarkets, drug stores and larger convenience stores along the East Coast over the past year. All machines come with a one-year manufacturer’s warranty on parts and, after the initial year, the terms of the service agreement take over.

Evaluating methods of distributing prepaid services
Distribution methods
Caterers to the needs of cash-based
Frees employee resources
Eliminates needs for training employees on the product
Eliminates queues
Available 24/7
Can interact with the customer in several languages
Serves as a channel for focused media campaigns
Presents up-sell oportunities to the customer

Two-pronged strategy

Prepaid service providers need to adopt a two-pronged kiosk strategy where they use in-store kiosks to influence branding and use third-party kiosk networks to ensure adequate reach of their product offerings.

AT&T Wireless is already doing this. The AT&T Digital Messaging System designed by Mercury Online Solutions and Frank Mayer & Associates is a web-based network of more than 4,000 kiosks in over 900 AT&T Wireless stores throughout the United States. Depending on the store size and traffic, up to four types of kiosks are installed in each store to demonstrate AT&T products, register store visitors, allow purchases or replay dynamic content to customers based on their interests through an interactive plasma screen. To ensure mass reach of its prepaid products, AT&T Wireless has partnered with Coinstar and Blackstone.

Final thoughts

The success of a kiosk project hinges on the smooth interplay between enclosure manufacturers, software firms, hardware component vendors, integrators and maintenance service providers. These individual suppliers often sell products rather than complete solutions. Barring a handful of turnkey players, there are few ‘keeper of the keys’ or project specialists in the market. Retailers should therefore build turnkey project management into their service level agreements with kiosk operators.

The kiosk interface needs to be user-friendly, especially for kiosks providing prepaid services. That’s because typical users include the unbanked who are likely to be technology neophytes. Repeated usage of kiosks can be accomplished only when the customer realizes the benefits of using it. The customer needs to be enticed in some way to approach the kiosk, and free talk time could prove to be a successful incentive. It is recommended that personnel at the site guide customers toward the kiosks in the initial stages of deployment. Such a strategy has significantly influenced kiosk project success, as has been the case with airline self-check in kiosks and retail self-checkout kiosks.

Past experience shows that a single instance of a nonfunctioning kiosk deters customers from approaching the unit a second time. Use of remote management software and regular maintenance schedules is imperative to avoid malfunctioning printers, unclaimed receipts lying around unattended kiosks and keyboards rendered unusable by stains or missing keys.

Once the benefits of interacting with the kiosk have been instilled in the customer, a shift in his behavioral pattern will occur — the customer now looks around the store for a kiosk instead of the store assistant. This is the "moment of truth." The retailer now has control of unlimited shelf space to sell services through the kiosks, graduating from offering prepaid to financial services such as insurance, mutual funds and loans — the possibilities are endless.ICN

The author is an industry analyst for Frost & Sullivan, an international marketing consulting and research firm. Visit the company’s website at www.frost.com.

Intelecard News Online | By the Numbers Posted by Craig at June 11, 2004 02:31 PM