STRATEGIC PARTNERS
The market for pay-as-you-go wireless phones is growing. What better way to sell prepaid phone cards than through kiosks? Find out what industry insiders think of this trend.
December 28, 2004
Chances are you know at least one person who has abandoned a traditional wireless phone "plan" for pay-as-you-go minutes. The latter offers a certain amount of freedom and anonymity which many people find appealing. Buying top-up minutes is easily done via phone, online, in stores or through kiosks.
The market for pay-as-you-go wireless is expected to grow to 24 percent of the wireless market by 2008, according to the Yankee Group. The number of wireless subscribers is expected to grow to 31.4 million, an increase of 150 percent, by 2008.
Prepaid wireless is an easy, convenient way for millions of adults including seniors - and teens who lack credit or bank accounts - to obtain cell phone service, pointed out Mike Skinner, Coinstar's director of sales and marketing for Epayment services.
Coinstar, along with its subsidiary CellCards of Illinois and recently acquired TelSouth Communications, is a growing provider of electronic payment products and services. The company services more than 18,000 retail locations with electronic payment products and services.
Consumers with less-than-ideal credit scores often don't qualify for the more traditional phone plans. Skinner estimated that 30 to 40 percent of consumers are turned away due their poor credit scores. Without prepaid cards, including preloaded debit and credit cards, there is "no other tool for those consumers," said Skinner.
The prepaid market is appealing to those people considered underbanked or unbanked. People who are underbanked may simply choose not to have an ongoing financial relationship with a financial institution. The underbanked market, explained Skinner, includes roughly 25 percent of minority groups such as Hispanics, Asians and African Americans.
The unbanked, on the other hand, have no credit and do not qualify for loans. This population, which could include many immigrants, would rely on services such as those offered by check cashing stores.
Doug Peter, president of St. Clair Interactive Communications, admits he was "dubious" about the market for kiosks and prepaid phone cards. After learning how prepaid was catching on in England, he began to have a change of heart about the market. St. Clair designs, develops and produces interactive touchscreen self-service transaction applications for a variety of markets including retail, healthcare and transportation. The company's kiosk solutions include digital music, photo and prepaid cards.
Peter attributes rapid growth in the prepaid phone card market to the younger generation's affinity for text messaging. The market is split, added Peter, into two groups: kids buying small amounts of time for themselves and parents buying bigger chunks of time, in part, for their children. He now considers the prepaid market "dynamic and expanding."
More than a phone
Peter noted for many people, phones are more than communication devices. Cell phones have become a fashion accessory of sorts, with changeable `skins' or covers to differentiate them from the cell phone crowd. Downloadable ring tones and games help to further stylize the devices.
"In the kiosk business, we would call them consummables," Peter said of cell phones. He likened the prepaid market to that of photo kiosks, a market which eventually exploded.
Coinstar's Teen Poll, conducted in 2004, revealed that 46 percent of teens surveyed said they had no idea how many monthly minutes they had available. According to Skinner, prepaid wireless offers a way to teach teens money management and to "plug the hole in their wallets."
Teens, more apt to add features to their phones, are a population of consumers that should not be ignored. The Coinstar survey also revealed that 39 percent of teens who have cell phones are on a pay-as-you-go plan. This is a 12 percent increase from the previous year.
Chris Closson, director of prepaid services for ReComm Wireless, pointed out that younger people want to customize their phones to build on their individuality by adding their own style of humor or music. ReComm is a prepaid product solutions company which serves as a master agent for Boost Mobile and Nextel.
Closson showcased his company's cell phone kiosk at the National Association of Convenience Stores trade show in Las Vegas this past October. The kiosk dispenses prepaid phones and prepaid phone cards.
Closson cautions that the customizable phones are not simply throwaways. Closson noted strong interest in the new kiosk. ReComm's kiosk also delivers prepaid MasterCards and ring tones.
"It is a growing business and (it) will continue to grow," said Closson of the prepaid wireless phone and card market. He credits the growth to the freedom of no contracts and the increased control users have over their spending. If there is one barrier to the prepaid market, noted Closson, it would be the "credit mentality" in the United States.
Location, location, location
Like real estate, the success of a prepaid wireless card kiosk depends on location. Aside from obvious retail locations, Skinner suggests truck stops and banks and credit unions as locations for prepaid phone card kiosks.
Closson sees his kiosks moving into supermarkets and car washes. "Our concentration is high-traffic locations," noted Closson, citing malls as an example. Ideal locations are those that do not require a full-time person to handle transactions.
Peter offers up movie theaters, game shops and electronics stores as locations for prepaid kiosks. He advises keeping digital entertainment together, even on the same kiosk. Phone cards, digital photo and music can all peacefully co-exist on one kiosk, noted Peter. He cautions, however, against adding too many options to a kiosk. For example, adding loyalty or store gift cards to a prepaid wireless kiosk may be confusing to users.
Retailers can expect to make money on prepaid kiosks, added Peter. The kiosks attract younger consumers, which many retailers want. They also offer "a decent margin and no inventory," Peter explained.
Customized kiosks?
If customizing wireless phones is all the rage, should the kiosks be customized as well? Peter says yes. "Customization of color and drama of the unit is very important," said Peter, noting that a photo kiosk used in a resort will need to look much different from a prepaid phone card kiosk in a video game store.
"It matters a lot what it (the kiosk) looks like," said Closson. "But content is important." His company's touchscreen can be changed on the fly to run commercials and offer coupons. ReComm stands out through the use of a light box used above its kiosks, offering a variety of marketing and advertising. The ReComm kiosks also offer bill payment and ATM services, in addition to prepaid wireless.
Coinstar is well-known for its green coin-counting kiosks. Having that recognition, and thousands of kiosks in place, is a definite plus for the company. Skinner pointed out that helping retailers maximize revenue from the kiosks is also very important. For example, the coin-counting kiosks incorporate prepaid cards for Starbucks.
Looking ahead
ReComm's Chris Closson is looking forward to the new year. The company anticipates rolling out its new cell phone kiosk as early as February. Closson predicts he's "going to have an exciting 2005."
Coinstar's Skinner is also optimistic about what the new year will bring, and he is anticipating growth in the pay-as-you-go cash cards, utility bill payment and gift card markets.
"I don't know how big this market can be," stated Peter. Communications devices such as cell phones, laptops and pagers are "all trying to be each other," he added. "Memory sticks and flash cards will get cheaper and will enhance these devices." The phone, said Peter, has become a personal entertainment device.
