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Looking to Extend Its Digital Gift Card Business, Blackhawk Snaps up CashStar
August 30, 2017

By John Stewart

Blackhawk Network Inc., a major player in merchant-branded prepaid cards, just gained an even bigger foothold in that market with its $175-million, all-cash acquisition of CashStar Inc., a 10-year-old firm specializing in digital gift cards.

Image Credit: CashStar
Kaplan: "Together, we can provide merchants with unified end-to-end solutions.”

Announced Wednesday morning the deal brings to Pleasanton, Calif.-based Blackhawk a platform enabling mrchants to market digital, branded gift cards directly to consumers. Blackhawk estimates the so-called first-party gift card market at $100 billion in annual sales. Digital cards, which consumers can download to laptops and mobile devices, is the fastest-growing segment of that market, Blackhawk says. In the latest data available, they accounted for about 18% of all gift card loads in 2015, up from 10% in 2014, according to Mercator Advisory Group, Maynard, Mass.

Portland, Maine-based CashStar claims more than 300 retail clients, including restaurants and retail chains like Best Buy, CVS Pharmacy, Nordstrom, Sephora, Starbucks, Subway, and Cheesecake Factory. "With the addition of CashStar, Blackhawk is now a leading provider in the fast-growing first-party digital market," said Talbott Roche, chief executive and president of Blackhawk Network, in a statement.

Observers reacted to the deal favorably. “This makes a lot of sense for Blackhawk,” says Lawrence S. Berlin, who follows Blackhawk as a vice president at Chicago-based First Analysis. “This expands the knowledge base Blackhawk already has.”

Other analysts agree, and point to CashStar’s relationship to mobile pioneer Starbucks as an especially enticing part of the deal for Blackhawk. "The acquisition extends [Blackhawk’s] mobile and digital gift carding capabilities, while also deepening [its] relationship with the leading mobile wallet in the world, Starbucks,” notes Thomas McCrohan, a fintech and payments analyst at New York City-based Mizuho Securities, in an email message. “This is all about [Blackhawk] building an omnichannel gift card experience for their clients and adding domain expertise in mobile."

While digitizing gift cards is nothing new for Blackhawk, the company will benefit from CashStar’s e-commerce capabilities for gift card payments, its retailer relationships, and its links to closed-loop processors, says Tim Sloane, who follows the prepaid card market as vice president for payments innovation at Mercator Advisory Group. “This acquisition brings Blackhawk into new accounts [and] enables several new services [it] can offer to merchants,” he says in an e-mail message.

From privately-held CashStar’s perspective, becoming part of the larger Blackhawk will enhance the company’s ability to reach more merchants. "Together, we can provide merchants with unified end-to-end solutions for [business-to-business] and [business-to-consumer] gift card distribution,” said Ben Kaplan, chief executive and president of CashStar, in a statement. “The combination of our platform and Blackhawk's product breadth and global reach creates innovative new applications for branded value and mobile payments."

From its roots as part of the Safeway supermarket chain, Blackhawk began marketing so-called gift card malls in retail chains, an innovation it ultimately took online. Safeway spun off the unit in 2014. It now operates in more than 25 countries and took in $1.9 billion in revenue last year.

Investor reaction to the deal seems somewhat positive so far. At mid-morning Wednesday, Blackhawk’s stock was trading on the Nasdaq at $44.03, up slightly more than 1%.

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