Blog: Loyalty Cards and Network Branded Prepaid Make a Perfect Match in Emerging Markets (November 2012)
By David Parker, Polymath Consulting
Recently we saw the announcement by Nakumatt in Kenya—think Tesco in the U.K., Walmart in the United States—that it will convert all of its 1 million loyalty cards to prepaid MasterCard cards. Polymath Consulting worked with Diamond Trust Bank (DTB), one of the two issuing banks selected by Nakumatt, and believes this is a game changer in the African market for loyalty and payments.
In 2010/11, there were roughly only 20,000 prepaid payment cards in Kenya. Putting 1 million cards into the market, therefore, will have a huge effect. And, the effect is likely to be disproportionately greater than “just” adding 1 million cards, because the Kenyan banked population is only about 25 percent. In other words, 75 percent of Kenyans are unbanked. If we look at broader “financial inclusion,” and include M-PESA, the banked population jumps to approximately 50 percent, but you can’t pay for your bricks-and-mortar shopping, yet, with mobile payments.
Prepaid cards in many European countries, like Italy, are considered “light current accounts,” or in American terms checkless checking accounts. So, with the move by Nakumatt, what you have happening in Kenya is a supermarket group, through its loyalty program, offering a light current account to 1 million of its customers.
What will the supermarket gain? Well, for the first time, it will start seeing share of spend— not just spend levels—of its customers in its stores. For example, a customer might spend 500 Kenyan shillings in Nakumatt—Is the customer a good customer? Is she a VIP customer? Of course, the real question is not what customers spend today, but their potential spend. By seeing share of spend—assuming Nakumatt can encourage usage for everyday purchases across the board—the grocery chain can see what else its customers spend in other retailers and will be able to truly understand who are current VIP customers and, even more importantly, who might become a VIP customer. Who has the greatest potential spend that is not being spent in their outlets?
Nakumatt plans to drive the spend through the card by offering loyalty points not just on spend in Nakumatt locations but also on transactions at the 10,000 local retailers that accept MasterCard and at any MasterCard retailers globally. This gives customers a real reason to use the card as their main payment tool in a market where many consumers have no other cards in their wallet, or if they do it’s often only an ATM card. The card will also be issued as contactless with Nakumatt putting in contactless terminals to drive POS transaction speed in its outlets. And, the card will be the world’s first multicurrency GPR card, and Kenya’s first multicurrency EMV card, enabling Nakumatt customers to spend not just in Kenya but also when they travel.
Polymath believes that in many emerging markets we will see major retailers look to convert their loyalty programs into combined loyalty payment solutions.
David Parker is the founder and CEO of Polymath Consulting, which works on projects and advises organizations across the cards and payments industry. Polymath Consulting and Parker are particularly well-known for their work on prepaid cards/e-wallets/mobile payments. Parker has worked with companies many geographies and across the complete value chain, helping banks with their overall prepaid strategy right through to market entry analysis; as well as working with telcos, processors and program managers on segment analysis, certification and membership applications. He can be reached at email@example.com.
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