The evolution of the first Open Loop Prepaid Card has an interesting story behind its creation. Two entrepreneurs, my business partner David and I, had both sold successful companies and formed a small private venture capital company. Our vision was to invest in creating successful retail internet companies. This was in the late 1990’s and the internet was one of the hottest things going. Internet start-up success stories were everywhere and venture capital was chasing many good ideas and even some bad ones.
David and I launched numerous internet based business models including marketing medical equipment on the internet and selling licensed apparel including t-shirts and other fashion items. We owned www.cooltees.com and through this company marketed custom designed and licensed logos to the Raveworld.net crowd. In the words of the Raveworld.net founder, they brought music to the masses all over the world. The activity on the sites was exciting and it was amazing to watch the growth in the sites online visitors and activity. It was like that commercial on TV where they are waiting for their first web site visitor and then it grows so fast they are freaked out.
One disturbing statistic was the number of Raveworld.net shoppers who came to the web site and then ultimately abandoned their shopping cart. Further analysis and interviews with the shoppers abandoning their shopping cart revealed that this 25 and under crowd was generally unbanked and did not have a credit or debit card and did not usually have a checking account. This was a problem, not only for us, but for all of the retail web sites marketing their products and services to this generation of customers. It was well know that larger retailers and small ones were spending large sums of money in the 90’s to build cutting edge retail web sites and looking for customers of all ages which included the unbanked.
David and I took on the challenge and soon designed the first open loop prepaid MasterCard gift card. We were smart enough to patent the original idea and business processes and we followed up with numerous addition patents and other intellectual property. Our concept simple, it was to create a prepaid MasterCard card that could be sold right alongside the prepaid phone cards that were also used by this same generation of customers. The hurdle was that there had never been an open loop prepaid card that did not have the individuals name encoded on the mag stripe and also embossed on the card’s plastic. It was adamantly argued by some in banking and credit card world that the retail stores would never take the card without the person’s name on it. We knew differently from our own retail Point-Of-Sale (POS) experience. We worked hard and partnered with an issuing bank and MasterCard and soon received variances and the approval to do a two year pilot. During the two year pilot we were limited to 50 bank and retail locations and the card had a maximum value of $100.
THE CHALLENGE WAS ON!!!! Now we had to convince the conservative and security minded sponsoring bank, the credit card processing company, the credit card production and fulfillment vendor and ultimately the bank and retail store partners that this was a good idea to sell these open loop prepaid cards. Most of all, we had to convince the retail stores that they could make a high enough profit margin selling the cards. After many meetings and discussions with the partners, the first anonymous open loop prepaid MasterCard card was produced and shipped for testing. The very first transaction on the anonymous card was done at our favorite restaurant that was coincidentally named “GRUMPY’S”. David and I were nervous as we walked to the front counter of the restaurant to pay for our lunch with the newly designed prepaid card. We definitely did not want the first attempt to use the card to be a failure. The card was taken swiped, authorized, approved and out the door we went celebrating.
The rest is history and during the two year pilot the prepaid cards were sold in just two states from various banks and large retail department stores. The cards sold had transactions in over 34 states and five countries without one problem. The pilot was released as a success and many banks and others rushed into the market to compete with our start-up company. Today, we see these prepaid cards everywhere and they are part of a very very large industry.