Breakage: Not an Industry Secret Anymore

The term “breakage” within the payments industry refers to the dollars left on a prepaid card post card expiration.  Those dollars are either funneled to the Program Manager (who constructed the initiative), or back to the company offering the card to their particular constituency.  Generally speaking, people outside the prepaid industry (consumer groups) have an erroneous opinion on how breakage works.  Here are some thoughts….

  • First, a network branded card (Visa, MasterCard) offers the cardholder choice.  The cardholder can spend the full value of the card wherever they want.  The only constraint is that they have to spend the entire load before the card expires.  Evidence suggests that the majority of cardholders are happy to trade the card’s ubiquity for the limited time restriction. 
  • Industry statistics demonstrate that less than 8% of the funds on a network branded prepaid card actually break.  As consumers become more prepaid savvy, I expect that percentage to decrease over time.
  • Generally speaking, only a single value prepaid card will actually break.  Reloadable cards (usually utilized in employee or partner programs) do not factor breakage as a source of revenue.  Once a reloadable card expires, the cardholder is usually reissued a new card, and their available balance is moved to that card. 
  • It is costly to support a card on a processor.  The technology and cardholder services infrastructure are significant investments for companies in the space.  Card breakage helps underwrite those costs.
  • If a cardholder has funds on a card post expiration, and they want to access their monies, they are reissued a new card less a nominal processing fee.
  • Without breakage revenue, consumers may not see the plethora of acquisition/retention campaigns available to them.
  • Companies initiating prepaid campaigns are now infusing cross-selling/up-selling strategies that overtly suggest what products the cardholder should spend their monies on. This tactic looks for the incremental consumer spend as a way to judge a program’s ROI.

Anyone looking to learn about the prepaid card space should visit the NBPCA website. You will find a plethora of relevant and objective industry information available.  

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