Merchants Willing To Leave Plastic Behind As They Expand Prepaid Offerings

Retailers, other merchants, and processors are increasingly embracing online and mobile forms of gift cards and related prepaid products as they seek to give customers as many payment options as possible, according to executives who spoke at this week’s Prepaid Expo USA in Orlando, Fla.

“If you’re not in digital, you don’t have a relationship with your customer,” said Michael J. Homiak, director of gift cards and incentives at The Home Depot Inc., the big-box home-supply retailer. Atlanta-based Home Depot in November 2009 introduced an electronic gift card that runs on CashStar Inc. technology. Homiak, a panelist at a session dubbed “Prepaid in a Digital Age,” didn’t disclose numbers, but said Home Depot saw “a very significant migration from plastic” in 2010.

“Digital in general is huge,” added another panelist, Stacey McAllister, director, business direct, at San Francisco-based Gap Inc., which launched an e-gift card in December.

At a separate session about new developments in closed-loop prepaid cards, Steve Kane, senior vice president at New York City-based SpaFinder Inc., said 80% of his company’s gift-certificate sales are now electronic. Consumers wishing to visit a spa can go to the SpaFinder Web site to find more than 4,000 U.S. spas in its network. Electronic gift certificates can be sent via e-mail and printed out at home. The company also sells gift cards through Safeway Inc.’s Blackhawk Network prepaid card distribution subsidiary and other prepaid card marketers, Kane says.

Kane expects more growth through new ventures and as new groups link to the SpaFinder network in coming months, which could bring the spa count to more than 15,000. SpaFinder also expects business-to-business transactions to grow, supplementing the consumer side. Also, the company last September launched an application for Apple Inc.’s iPhone that now brings in 23% of its online traffic. “I think digital will jump dramatically in the next couple of years,” Kane said.

Minneapolis-based consumer-electronics giant Best Buy Co. Inc. is getting close to launching an electronic prepaid card, according to Tom Boucher, senior program manager of gift cards. A mobile version also is planned. “We’re just scratching the surface,” said Boucher. “I definitely think ‘e’ is emerging, and it’s here to stay.”

Springfield, Mo.-based outdoor equipment retailer Bass Pro Shops has offered e-gift cards for several years and now promotes them through its Facebook page, said Greg Thompson, corporate incentives manager. Customers like the electronic versions, but they won’t banish physical gift cards, according to Thompson. “Plastic cards are never going to go away,” he said.

Fully electronic gift cards present unique risk issues, including verification of the cardholder’s identity, that aren’t present with physical prepaid cards, panelists cautioned. Still, they said that while fraud rates run higher than on physical transactions, electronic gift cards are worth it because of sales lifts and consumer acceptance. “I think consumers are ready for anything that makes sense,” said Bertrand Sosa, founder and president of prepaid services provider Rêv Worldwide who earlier, with his brother Roy, founded prepaid card program manager NetSpend Holdings Inc.

Casual restaurant chain Applebee’s Services Inc. sells a small amount of digital gift cards but recently has concentrated on improving displays and promotions of regular gift cards, said Bridget Moen, senior brand manager for gift cards. Gift cards often were stored behind bars or in other inconspicuous places, she said. That led to just an occasional sale “every now and then despite ourselves.”