Finovate Blog

This week, digital poster child Square jumped into the plastic gift card market. Unlike many of its new endeavors, old-school cards were met with a decided lack of enthusiasm in the tech press (and my Twitter feed). Many recalled the company’s failed efforts with virtual gift cards (which I liked then, and still do). Most people in the tech press (and even more so in my Twitter feed) want their iPhone to handle all transactions, loyalty points, and payments. But that’s not quite how the world works yet. Even Starbucks, claiming 90% of all U.S. mobile payments (pre Apple Pay of course), just launched a major holiday plastic initiative (see below).

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How Square Gift Cards Work
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The Square offering is compelling for its core small business clients. The cards are drop-dead simple. Merchants order from their Square dashboard which is powered by eCardSystems. Cards cost $1.50 per card with a minimum order of 125 and are shipped in 3 business days. Merchants load by swiping through Square’s POS dongle or Register, and users are good to go. The merchant receives the entire load amount immediately (less Square’s 2.9% cut).

The cards are heavily merchant branded. The merchant’s name is printed on the front in a choice of fonts and colors and the merchant’s contact info is printed on the back. The card design can be one of 20 generic designs (see screenshot) or can be customized with any image uploaded by merchant (cost is the same, but minimum quantity rises to 500, and turnaround time is 15 business days, so almost too late for the 2014 holiday season). The only Square branding is a small logo, seen back-of-card, lower right (see top of post).

The cards are reloadable, so they can be used as a loyalty platform, with rewards based on load amount. For example, my favorite coffee shop adds an extra 10% of value for each load.

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 Starbucks Unveils In-Store “Card Collection”
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One of the the Starbucks flagship stores is in my neighborhood, so we occasionally see merchandise being tested. So, I’m not sure if this over-the-top gift card display is in wide use (see its Nov 12 press release). But the Seattle U-Village main Starbucks has two of these massive display cases near the queue (the back side has the usual holiday beans and merchandise). Apparently, there are more than 100 different designs.

It’s no surprise. Last year, the company reported that $1.4 billion was loaded onto cards during 4th quarter and an astonishing 1 out of every 8 U.S. adults received a Starbucks card. It looks like they are going for 1 in 7 this year.

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Bank Opportunities
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I’ve been following bank efforts in gift cards for 10 years and have found little exciting to report (see archives). While a few bursts of activity have occurred at holiday times the last few years (previous posts), banks seem content to let their customers pick up cards at Safeway. Even Chase, which has a great card that my son uses, and was the highest-rated big-bank card in Consumer Reports (Aug 2013, Prepaid Buying Guide), has zero merchandising for “gift cards” on its website (see third screenshot below). 

Few banks are going to emulate Square’s approach and build gift cards for acquiring clients. But I do see an opportunity to develop a retail gift card marketplace offering both plastic and virtual cards with distribution via online, mobile, in-branch and even ATM. It’s on my short list of ways FIs could turn a buck from their presence (see post).

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#1: First step in ordering plastic gift cards from Square’s merchant dashboard

#2 Choose your card design (or upload your own image)

#3 Searching for “gift card” at Chase Bank