Canadian firms move ahead on prepaid credit card network

Consumers who use prepaid credit cards to make purchases at point of sale and online will now be able to purchase and reload their cards at 1,000 retail locations across Canada.

Now Prepay, a subsidiary of VendTek Systems Inc. in Port Coquitlam, B.C., announced Tuesday the initial locations including Supersave Gas in B.C. and Alberta, Jug Mart in Toronto, Fresh Mint Mart in London, Ont. and, in April, Pioneer Petroleum. The retailers are in the process of rolling a point of sale application to their terminals. The software, manufactured by Now Prepay, allows retailers to authorize and put money on Mint Inc. prepaid credit cards. Mint Inc., a subsidiary of Mint Technology Corp., is a provider of prepaid credit card programs and is partnered with Mastercard Canada. The cards include several brands such as mycard, plastic now and xcard. Mint has partnerships with Mastercard and Peoples Trust bank in Vancouver. Mint currently does not have any formal agreements with the big five banks but anyone can purchase a card regardless of where they bank as it operates independently of financial institutions.

The terminal connects to Now Prepay’s server, which generates a PIN number associated with the card’s value. The cards are sold in $25, $50, $100 and $200 denominations. The customer then uses the PIN number to load value their card via the phone or Web.

There are 8,500 retail partner locations across Canada that will eventually offer the service, with an additional 1,500 to come in the next four to six weeks. To locate a store where they can purchase the cards, customers can go to Now Prepay’s Web site. There, they are prompted to enter the first three digits of their postal code to search for the nearest location.

While prepaid credit cards have taken off south of the border, the market is relatively new in Canada. In its initial phase, Now Prepay will target people who currently don’t have a bank account or can’t obtain a credit card. Three to four million Canadians presently do not have a bank account, according to Now Prepay president Doug Buchanan.

“It’s the un-banking population that are going to be the early adopters of the product,” said Buchanan.

Teenagers and young adults would fall into this category. Frank Maduri, president and CEO of Mint Technology Corp. said parents, for example, could put money from their bank account onto their child’s card while he or she is away at university so that they could buy text books or groceries. Maduri has even given his own teenage children cards to purchase music online, something they couldn’t do before with debit cards.

“Users feel more secure if something got stolen, it’s not harming their credit and it’s not taking money out of their bank account,” said Maduri.

Technology consultant Rena Granofsky of RIT Experts said this type of card offers protection both for the user and the merchant.

“That would be a huge bonus for parents who are trying to help their kids manage while they’re away,” said Granofsky. “It provides control for the retailer with less risk involved and for the person who wants to manage how much they are spending.”

The idea of prepaid credit cards, however, is not a new one to Canadian consumers. While it doesn’t allow amounts larger than $100, Dexit, which uses RFID technology instead of mag stripe, was first to market with this kind of product over five years ago. Dexit is a small card with an RFID embedded chip in it that customers can use for small point of sale purchases at approximately 350 locations in Toronto. Dexit, however, has failed to capture a large market share and requires retailers to put in an RFID reader to accept payment.

“From a merchant’s perspective there is no new POS technology that’s required,” said Nagesh Devata, vice-president of acceptance and product solutions at Mastercard Canada. “It operates on the same POS network and solution that the merchant has today.”

Although many retailers are moving to chip-based technologies to ready themselves for chip cards, Dexit users can only shop at stores that support the card, whereas prepaid credit cards are accepted anywhere Mastercard is. Granofsky said Dexit should look to expanding its service to offer customers the ability to make larger purchases in order to compete with products like those offered by Mastercard.

“It’s a direction that Dexit would have to consider in any case,” she said. “The $100 (limit) may be too much of a restriction for some people.”

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