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EMERGING MARKETS
Building Fiscal Stability in Zimbabwe with Prepaid

Building Fiscal Stability in Zimbabwe with Prepaid

September 26, 2011
William Cain
By: William Cain
VRL provides independent incisive analysis and insight for the global cards and payments community.

Zimbabwean issuer FBC Bank has teamed up with MasterCard and ElectraCard Services to offer prepaid cards in the country.

Prepaid cards are a particularly important part of the FBC Bank portfolio because of their ability to replace cash spending among unbanked individuals. The cards can be issued at lower cost by banks than fully-fledged current account packages but still allow users to load funds and make payments using a plastic card.

ElectraCard Services (ECS) was recently named FBC's processor for debit and prepaid transactions under the agreement. Key to securing that the deal, according to Ramesh Mengawade, CEO of ECS, was the processor's experience across a number of other African markets. "I think the key thing in any market and more so in Africa is local knowledge of the market place," he said.

"We had a number of installations in Africa and knew the specific rules and regulations of the association in that market. That was very important for us... Those are the things that are important and that made them decide to go with us."

Mengawade said ECS had made its decision to do business in Zimbabwe and chose its partner carefully, particularly regarding the ethical and legal complications of operating in the country. Zimbabwe is the subject of targeted sanctions from the EU and US because of violations of human and democratic rights.

"Actually, we have not come across any of those unethical means at this point in time," he said.

"It really depends on the provider. If you are very clear that you're not going to indulge in any of those things... I don't think that's a detriment to getting business."

The conversion from cash to electronic payments in Zimbabwe has become particularly important – partly as a result of its relative economic isolation. Its domestic currency, the Zimbabwean dollar, was discontinued in 2009 because of persistent hyperinflation, which had led to the central bank issuing notes in denominations as high as ZWL100 trillion and in 2003 even running out of ink to print more money.

Clarifying currency

Now a mix of currencies, including the US Dollar, Euro, South African Rand, Botswana Pula and the UK's Pound Sterling are used for cash transactions. Using prepaid products should help simplify the complex set of problems caused by such a fragmented payments environment, according to Agrippa Mugwagwa, executive director of FBC Bank.

"If there is a country with a compelling reason to go totally electronic as soon as possible, it is Zimbabwe," he said when FBC announced its partnership with MasterCard in July.

"We are using the US dollar currency which we import at great cost, change is a nightmare, notes get soiled quickly and there is a high inherent risk of counterfeit notes," he said.

The services ECS will provide to FBC are similar to those for the banks it works with across Africa, the Middle East and South East Asia. They are designed to allow banks to concentrate on the day-to-day running and design of their cards businesses while outsourcing time consuming and labor-intensive activities like the issuing of cards and transaction processing.

The ECS system is designed to be "change management-friendly" according to Mengawade, "a product which alleviates the problems of some of the legacy payments platforms" and keeps fixed costs low.

"I think very important for the bank is that we take the headache out of the technology and card part of the operations from them so they can focus on the business," he said.

"Whether it's for personalization or for delivery of cards – we have some tie-ups locally available. The whole platform is hosted, we run the operations for it."

Growth trends

Mengawade sees promising growth trends in prepaid cards across the emerging markets ECS operates in, particularly in the gift card, general purpose spending and electronic benefit transfer areas.

He says another key benefit is the speed of deployment for prepaid products.

"You know, it's a great product from that perspective," he said. "The ability to start it much more quickly than doing something on a hard core account based system. I see a lot of scope for prepaid in those three or four segments.

The company currently works with 10-12 companies in Africa in countries including Ghana and Kenya and seven or eight in the Middle East, mainly in Dubai and Abu Dhabi. Fifty percent of its processing comes from Indian banks and fifty percent from its international business.

In India specifically, Mengawade said growth in prepaid was very sector specific. Multi-currency and travel cards are becoming more popular and growing quickly. Other segments, notably gift cards, are failing to deliver the spectacular growth seen in markets other markets, because of the special characteristics of the Indian market.

"In India, there are only certain segments where prepaid is growing," he said. "For example, we probably have around 10 million travel cards – multi-currency travel cards. We have general purpose spend and payroll corporate cards. Otherwise we've made negligible progress in the gift card segment which is so big in the US or Australia or other places. That's because organised retail is not as big a part of the Indian market as in these other countries."

"In terms of growth, longer term I expect gift to pick up in India. Other segments that are really driving prepaid are financial inclusion where electronic benefits can be put on the plastic. I expect that market to grow. It's a tougher market because margins are going to be lower but the volumes are going to be much higher. We'll have to be very focused and good program management is required to make money in the prepaid segment there."


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