The Perks Of Pre-Pay

The benefits of operating a micro market include the ability to offer fresh food, to provide larger sizes and a wider variety of products and, in most cases, favorable revenues. In fact, NAMA data reports that the average micro market sales per operator are $427,500 per year. Yet there is one outstanding perk of the micro market that gets overlooked: micro market pre-paid accounts.

Most micro market providers offer pre-paid account solutions (also known as stored value accounts) where users simply log into their specific account and are prompted to load funds using cash or credit/debit for future use at the micro market. Ways to access those pre-paid accounts can include physical micro market cards, key tags, employee badges with linked micro market accounts, pin codes and passwords, and biometrics such as fingerprints.

For the micro market user, pre-paid purchases can result in loyalty points that lead to future rewards.

For the micro market operator, pre-paid accounts provide a plethora of benefits that include minimized card processing fees, increased consumer engagement and loyalty, higher spending per transaction than cash and being paid in advance of the purchase. The perks of operating pre-paid micro market accounts far exceed the liabilities and challenges that accompany them.

Free up capital

One of the most important factors of pre-paid market accounts is that in most cases, micro market providers allow the operator to receive the money upfront. “One of the biggest struggles in vending and OCS for years — for both small and large operators — is creating cash flow,” said Kevin Searcy, president of deORO Markets and owner of vending/OCS company Golden Brew Beverage. “As operators, we either are putting hundreds of dollars of product within a machine and waiting for it to sell or selling a customer items on invoice that can go to 90 days before payment. With account balances in micro markets we are finally able to remove some of this burden.”

In most cases, operators receive the pre-paid funds or “float” money in their account, which frees up capital to invest in other markets, which is another value added for operators when it comes to pre-paid micro market cards.

Challenges of pre-paid cards

Money management, as well as refunding money, can be a challenge for operators who are first dealing with pre-paid accounts. When operators hold the pre-paid funds, that float money becomes a liability on their balance sheet. This type of money management is new for operators, but it shouldn’t deter them from utilizing customer pre-paid accounts, said Jeff Leider, president of Tri-R Coffee & Vending and Avanti Markets operator. “There is no other way in the industry to get the money from the consumer before they buy an item,” he said. “So right there the benefit of offering a pre-paid solution outweighs the liability.” When it comes to liability, Tri-R takes full responsibility. “If a customer loses their card, we issue another one with the credit transferred over to the new card. No credit information is stored on the kiosk/check out stand so even if the kiosk was stolen the thief could not get any credit card info, but they would get the cash. We would still of course keep those funds on all the cards and just deal with the loss.”

If an employee is terminated, Leider works with the human resource department to return the employee’s funds or, in some cases, connects directly with the employee to return market card funds. “We have never had to execute a large scale refund, say, if a large plant closed down, so that might be difficult if that happens in the future, but we will cross that bridge when we get to it.”

There are instances, however, where the micro market provider holds the funds, rather than the operator, at which point the operator is not liable for the incoming and outgoing funds. They are also not responsible for the money management aspect. “We hold the card balances for all consumers with pre-paid cards,” said Jim Mitchell, president of Company Kitchen. “In so doing, the operator is not hassled with managing balances, refunds and transaction inquiries.”

Although money management can be a huge aspect of pre-paid accounts, getting the money into the accounts in the first place is known to be a bigger task. “The only initial challenge is effectively getting the bulk of the employees signed up with market cards and getting that loyalty card in their hand,” said Elyssa Allahyar-Steiner, vice president of sales and marketing at Avanti Markets. “You have about 30 seconds to explain at grand openings the great benefits of the market card and why the employees should have one and so you want to maximize that 30 seconds.”

Security is a concern for some consumers at the beginning. “Some of our customers are a little concerned at first about leaving money on their accounts,” said John Ward, president of Serenity Vending and Three Square Market operator. “But then they realize the advantages of prepayment, that it allows for them to actually track their transactions and really see what they are spending.”

Long-term advantages

Despite beginning challenges, pre-paid accounts/cards are something every operator should be promoting. “Pre-paid market cards are micro market operators’ single biggest benefit,” said Joe Loparco, vice president of sales at REVIVE. Alongside the fact that operators get the money upfront, pre-paid cards can offset credit card fees.

Another advantage is the ability to segment consumers and target market groups and individual consumers. “In today’s PCI compliant environment, you cannot track transactions to an individual when they use their credit card, however, you can when they use a pre-paid card,” continued Mitchell of Company Kitchen.

These promotions can also lead to higher loyalty and customer engagement, especially because operators may utilize customized promotions based on transaction history. “Customers are identified by the operator, and the buying habits and preferences are important to the operator’s suppliers, and therefore valuable to the operator,” said Loparco.

“Customer loyalty is one of the biggest advantages to offering pre-paid cards,” said Kevin Galaida, VP of business development at Breakroom Provisions. “Operators can target promotions toward customers and that in turn lead to higher participation and repeat business in the market. There is a direct financial benefit for operators.”

Higher participation generally means higher sales, as well. “With micro market stored value accounts, we’ve seen a higher spend per transaction than cash; up to 10 percent higher,” said Joe Hessling, CEO of 365 Retail Markets.

Dormant accounts

Micro markets have been around for several years now and as employees come and go, there is the question of what happens to market card funds that are not used? When an employee leaves a company or is terminated, they are likely to retrieve what’s left on their card, but not in all cases. For example, if $1.25 was left on the card, the employee may or may not ask for those funds back. In the case that they do not, what happens to the money? It’s not much if one employee does this, but suddenly what happens if hundreds of employees are leaving small amounts of money on their card?

“In almost all states, any remaining money that is unclaimed on these market cards will need to be turned over their State as dormant funds to be held by the State until claimed by their owner,” said Jim Brinton, CEO of Avanti Markets. “This is normally after two to three years, sometimes longer. If an operator builds a small inactive monthly fee into their market card agreement which may be assessed after a long period of inactivity, the small amount of funds remaining on these market cards will be depleted via this charge and the money will in essence go into the operator’s pocket instead of potentially sitting for years in their State’s fund. And it will save the operator a significant amount of paperwork needed to be done when turning dormant money over to a State.”  

From credit to pre-pay

How consumers are currently paying at micro markets is contingent on a variety of factors. “We see locations that are blue collar and/or a mixture of blue collar with some office personnel and these accounts typically take advantage of the market card because there may be a higher usage of cash loads in these accounts,” Allahyar-Steiner said. “However, you walk into a white-collar location, or tech environment where you have younger generations, and they don’t necessarily mind swiping their debit/credit card for small transactions.”

Hessling notes that in his experience, credit/debit and stored value account purchases have been about even. “Transaction mix is pretty steady at 49 percent credit/debit and 49 percent stored value and 2 percent cash,” he said.

Leider has been noticing a decrease in the number of people paying with pre-paid cards. “More than half of our market sales are paid by credit/debit cards and they use them just to pay for that purchase at that time,” said Leider. In order to grow market card usage, Leider says he will begin giving loyalty points to everyone who uses their pre-paid account, no matter what.

Terri Starnes-Bryant, president of Microtronic US indicates that in order to increase pre-paid usage, operators need to be providing incentives. “They need to be offering some type of promotion that requires the pre-paid cards, such as spend $100 and get $10 added to your account,” she said. “Many of our operators offer bonus funds when loading larger amounts to the market cards. One in particular gives a $5 bonus when loading $50. He’s told me the $50 loads are unbelievable.”

Mitchell suggests promoting pre-paid accounts with traditional and digital methods. “Place clings within close proximity of the product on the shelf or cooler as a reminder when the consumer is about to purchase the product or utilize digital screens that continuously promote the discounts the user will receive by using the stored value card,” he said.

The best method according to Galaida is to focus on the rewards a pre-paid card offers the user. “Promote rather than penalize,” he said. “Show them they can earn rewards by using their market card instead of charging additional fees for credit or debit purchases.”

Among other things, pre-paid accounts allow operators to track purchasing habits and increase customer loyalty. The question is not if to promote them, but rather how to get more consumers utilizing this feature in the micro market.