October 3, 2011
CashStar Inc. plans early next year to roll out a mobile app that will let consumers tap unredeemed rewards points held at banks to buy digital gift cards from major merchants. The app will also feature location-based alerts to let users know when they are near a merchant issuer.
Portland, Maine-based CashStar, which specializes in technology for e-coupons and digital gift cards, is in talks with a number of banks for the commercial rollout of the app, called MobileGiftReward, says cofounder and chief executive David Stone. With the app, which currently works on devices running Apple Inc.’s iOS with a version for Google Inc.’s Android system to follow, users can convert unused rewards points into gift cards usable at CashStar client merchants. CashStar estimates more than $16 billion in rewards value remains unredeemed each year, largely because of difficult or inconvenient redemption terms. “Consumers love [rewards points] but hate the hassle to convert them to use,” says Stone.
The Gap, Starbucks, Williams-Sonoma, The Container Store, and Home Depot are among retailers that have signed on so far to accept the digital cards, CashStar says. The company counts about 200 retail brands among its clients. Users can choose the brand they want. The app then generates a bar code that can be scanned at any of that brand’s stores. In cases where the merchant doesn’t have a scanner at checkout, the clerk can key in a 16-digit number that appears with the bar code.
Stone, who won’t name the financial institutions CashStar is talking to, says banks can benefit by reducing their booked rewards liability and cementing ties with current customers. Once a bank has signed up, it can choose how to promote the app to its rewards customers. “It’s up to the bank how much promotion they’ll do,” says Stone. CashStar will earn most of its revenue on the program by charging a commission to participating retailers, but will levy a “small issuing fee” to banks as well, says Stone, who won’t go into detail on pricing.
An additional feature of MobileGiftReward is a location-based alert that can tell users when they are near a store whose digital card they have selected. Stone says the app may also add the capability of extending offers from those merchants at the same time these alerts appear.
Observers point out that converting unused rewards points into gift cards is nothing new. But where CashStar may have an edge is in the links it is forging with financial institutions to tap into their rewards storehouses. “Integrating to financial-institution rewards programs is a really clever strategy,” notes Tim Sloane, director of prepaid advisory services at Mercator Advisory Group, Maynard, Mass. While the app may or may not reduce costs for banks, Sloane says it should burnish their image with their best customers, those who earn rewards. “It’s an innovative way to burn points,” he says. “[Banks] want to show they’re on the leading edge.”
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