Coinstar Moves into Electronic Transactions with its CellCards Deal

With its acquisition of CellCards of Illinois LLC, Bellevue, Wash.-based Coinstar Inc. is making a play that takes advantage of two key trends in the electronic transactions market: rising sales of prepaid value products and the increasing importance of the so-called unbanked consumer market. With a network of some 11,000 machines deployed mostly in supermarkets to count consumers' loose change, 11-year-old Coinstar late last year began moving into electronic transactions by selling prepaid phone cards and MasterCard cards from selected coin-counting kiosks as well as from smaller self-service kiosks, called “Coinstar Prepaid Centers.” The new program is being rolled out regionally, and now includes a network of about 200 of the smaller machines, says a spokesperson, as well as another 600 of its coin-counting kiosks. Coinstar cites industry analysts' estimates that sales of prepaid telecom cards are set to soar from $99 billion last year to $154 billion in 2005. At the same time, under- and unbanked consumers are getting more attention from check-cashing, bill-payment, and prepaid-product vendors now that estimates peg their number at about 65 million, which includes both people without bank accounts and people who have accounts but don't use them to withdraw cash or make payments. CellCards, which was started in 1998 by a group of check-cashing veterans, found through its own research that these consumers are often the same people who buy the bulk of wireless cards and other prepaid products. The CellCards acquisition now gives Coinstar an additional 13,000 retail locations, which include in-lane installations at major drugstore chains like Walgreen, CVS, and Eckerd. One of the country's largest sellers of prepaid services, CellCards distributes prepaid cards for wireless, long-distance, and residential (dial-tone) phone services, as well as prepaid MasterCards. Its network includes terminals that can print prepaid cards on demand, in any amount, at the point of sale, allowing carriers and merchants to avoid stocking card inventories. A subsidiary of Wallingford, Conn.-based American Payment Systems Inc., Des Plaines, Ill.-based CellCards was not included in the $110 million sale of APS by UIL Holdings Corp. to CheckFree Corp., announced in December and expected to close by June 30. APS, which specializes in systems that allow consumers to pay bills at retail locations, took a 51% stake in CellCards in 2001. No price has been announced for Coinstar's acquisition of CellCards. Coinstar now plans to expand its prepaid network to other venues, including universities, mass merchandisers, convenience stores, and banks, says the spokesperson. Coinstar currently has agreements with 124 chains, mostly supermarkets. To oversee its new electronic-transactions initiative, Coinstar last month hired Steve Verleye, a former executive at Intel Corp. and most recently chief executive of Applied Microsystems.