Gift cards are hot, accounting for nearly 5% of holiday spending last year. How can banks leverage this interest?
There are two broad categories to consider:
- Prepaid MasterCard/Visa
- Single-merchant gift cards
Most discussions in the industry are centered around prepaid MasterCard/Visas, but we think there is a significant opportunity in the second category: merchant cards. Here are ways for financial institutions to jump onto the gift-card bandwagon:
Easy (requires little investment, primarily customer education):
- Purchase education: Provide consumer education on the pros and cons of merchant gift-card purchases and urge customers to charge the cards to your credit or debit cards. Emphasize built-in protections such as fraud guarantees, tracking, and so on.
- Purchase incentives: If your systems allow it, add an incentive such as a 1% rebate, sweepstakes entry, or purchase protection.
- Directory: Publish a list of stores that are selling gift cards and/or create an online directory where cards can be purchased online.
Harder (requires programming, employee training, and more)
Integrate gift-card account-access into online banking: Using account-aggregation technology, such as that offered by Yodlee, CashEdge and others, link to the merchant's gift-card account-management area such as <starbucks.com/card>. The integrated view would provide a secure and easy way for customers to manage their gift card accounts. - Offer automated reloading via your debit/credit card: When gift-card account balances get low, offer to automatically reload from your credit/debit card. Reloading could be manual or automated, e.g., "Add $25 to my Starbucks card whenever it dips below $5."
- Send low-balance alerts when gift-card accounts dip below a set amount.
- Resell merchant cards via shopping cart such as The Card Cafe <cardcafe.com> (see screenshot below)
Hardest (requires customer training, sales, and website programming)
- Issue gift cards on behalf of merchants
Sponsor your own gift card network with a stored-value card that can be used at multiple sources. For example, the Northampton Chamber of Commerce <northamptonchamber.com> markets a gift card that can be used at 50 local merchants (see inset). The card, which can be purchased, reloaded, and tracked online is powered by Swipe It Technology <swipeit.com> which offers turnkey gift and loyalty packages beginning at $299, plus a $12 monthly fee and $0.23 transaction charge. Other vendors include eCardSystems <ecardsystems.com>, Valutec <valutecardsolutions.com> and Value Gift Card <valuegiftcard.com>.
The business case
There is a surprisingly good business case for integrating gift cards into your online banking service with not one but three potential revenue streams:
- Interchange from loading/reloading: Provided customers load the card via debit/credit, you can earn 1.5%+ on the load, for a $50 card, that's $0.75 per load
- NSF/OD income: Every debit card purchase increases the chance of an NSF/OD item; assuming one of every 300 cards loaded results in an NSF/OD fee, the profit per load is $0.10 ($30/300).
- Merchant commissions: Selling cards at your website could earn $5 or more per card sold.
The program also brings in the usual intangibles: new customer accounts, positive PR, branding benefits, retention and so on.
--JB