In 1996, when Massimo Sarmi was general manager of Italian mobile-phone operator TIM, he was part of the team that invented the rechargeable prepaid SIM card that let customers buy wireless calls in advance. Prepaid SIMs opened up the mobile market to millions of new users: people with limited budgets or spotty credit histories, immigrants, children, tourists, and so on. The concept was largely responsible for TIM's (TI) early success and was copied all over the world.
Now, as CEO of Poste Italiane, the Italian postal service, Sarmi has replicated the idea in financial services. His "Postepay" card, accepted by the Visa Electron network, is a prepaid, rechargeable Visa or MasterCard that is rapidly becoming the credit card surrogate of choice for Italians without plastic, credit ratings, or even bank accounts.
It's not just for ATM withdrawals or store purchases, either. Postepay has also become a cornerstone of Italian e-commerce. It's by far the most popular payment method on the Italian version of eBay (EBAY), where the cards are recognized by eBay's PayPal electronic payment system.
ONE-TIME FEE. Software giant Microsoft (MSFT) also has gotten into the act, recently bundling a special "Postepay Xbox Live" card with its popular game console. Charged up with cash, the card can be used like any other plastic, giving kids a convenient way to buy online Xbox games and other downloadable goodies.
"It has all kinds of advantages," effuses Alessandra D'Angelo, a 23-year-old arts student with a Postepay card. D'Angelo says she uses it in stores, to pay bills online, and to buy items on eBay. "It's easy to recharge with more money, and it only cost me five € ($6.30)." (The one-time fee for the card.) "If I had a bank account I'd have to spend as much as€300 per year."
To be sure, Italy isn't the only place with prepaid credit cards. Visa USA offers the Buxx cards aimed at teenagers, while American Express (AXP) calls its more upscale prepaid offering the "Travelers Cheque" card. What sets Postepay apart is its enormous popularity. There are already 2.2 million in circulation in Italy, and the post office is issuing 20,000 new cards per week.
MICRO BANKING. "Postepay is the most successful prepaid card anywhere," says a spokesman for Visa in London. "It's our model for what we'd like to roll out in the rest of Europe." One reason it has done so much better than e-cash systems such as Moneo in France is that it piggybacks on the existing global credit card network, rather than requiring an expensive new infrastructure of point-of-sale terminals and payment authorization.
The potential for prepaid credit cards extends well beyond Europe, too. As with prepaid SIMs, they could open up the world of plastic to millions of people in developing economies, where banking services are sometimes limited and transient populations make billing and credit-checking impractical.
Gaetano Carboni, general manager for regional key accounts, MasterCard Europe, says prepaid cards are part of a trend to open up payment systems to whole new groups of consumers. And, he adds, these new cards help marketing strategists. "The evolution in the payment cards market is based on the creation of innovative products which are targeted toward better and better market segmentation," he says.
YOUR ALLOWANCE. Why is Postepay so popular in a developed country like Italy? It can be difficult to open a bank account there, much less obtain a credit card, without guarantees such as official pay slips from an employer. So for students and pensioners, prepaid cards are the answer to their prayers. "The best thing about it is you can't go overdrawn," says D'Angelo. "When you hit zero, it's zero and that's that."
Parents have already begun to give their teenagers prepaid ATM cards with a ceiling on spending. And younger kids can use the cards to buy and sell on eBay or download games and music, without their parents worrying about stratospheric bills. The cards are also very popular among immigrant workers, who often can't get bank accounts.
The success of Postepay is now prompting conventional Italian banks to copy the idea and issue their own prepaid cards, though Poste Italiane still claims 70% market share, according to Sarmi. Banks elsewhere in Europe are also jumping in. Visa says the Bank of Ireland has begun issuing prepaid cards that can be purchased at post offices in Britain and Ireland, though they're targeted more for travel abroad, while Postepay is for everyday use.
WHAT ABOUT STAMPS? To stay ahead, Sarmi is going after new market segments, such as the corporate credit card market, where Poste Italiane also offers complete accounting services attached to the cards. He's also tapping into World Cup fever. This month, he launched a World Cup Postepay gift card with MasterCard (MC), which he hopes will be the first step in creating a new market of collector cards.
Unlike ordinary Postepay cards, the World Cup gift certificate isn't rechargeable. Available in denominations of €50, €100, €200, or €500 ($63 to $630), recipients can spend it down and then keep the card as a souvenir.
Postepay was part of the reason consulting firm Roland Berger ranked Poste Italiane the most innovative Italian financial services company in its 2005 "Best of Business" Awards. "Poste Italiane has been proactive in its commercial strategy like no one else in the market," says Francesco Calvi, an account director with Roland Berger. Calvi says that the Italian post office, which like many European counterparts offers simple banking services, "has gone as far as it possibly could into banking without a banking license."
PORTABLE PIGGY BANK. When it comes to prepaid cards, Poste Italiane has some big advantages. Commercial banks have copied the concept, "but they can't compete with Poste Italiane's distribution capacity—there are 14,000 post offices, compared with about 3,000 branches at the largest Italian retail bank," he says. That means ample places for Postepay users to recharge their cards or check their balances.
Poste Italiane has the added advantage of being able to react immediately to fraud attempts because its back-office operations take place in real time, unlike those at banks. "We manage 20 million financial transactions in real time every day, whether it's someone withdrawing his pension or a bill being paid, or a bond transaction or mortgage payment," says Sarmi.
"The best examples of innovation," says Sarmi, "are simple consumer products that match customer needs." Alessandra D'Angelo would tend to agree. "It's my little piggy bank," she says. "I wouldn't want to be without it."
Kline is a correspondent for BusinessWeek in Milan
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