Gift Card Season Off to the Races: Square Places New Bet, Starbucks Goes All-In, Banks Stuck at Starting Gate


image 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).


How Square Gift Cards Work

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.


 Starbucks Unveils In-Store “Card Collection”

imageOne 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.


Bank Opportunities

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).


#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


Bank Opportunity #307: Online/Mobile Gift Cards

imageRegardless of the form factor, a favorite holiday gift is money. Some people like to give crisp 20s, the hand-written check still has a certain charm (as long as the recipient has mobile deposit capture), but the biggest growth area has been the plastic gift card (note 1).

Banks should have owned this trend, at least in the United States. Those 100,000 branches would have been good distribution points (note 2), a place that you trust far more than the express checkout lane at Safeway. But alas, that ship has sailed.

The good news? Financial institutions still have an opportunity to be major players in digital gift car distribution, especially mobile. Here’s why:

  • Purchase time is reduced to seconds, since you already know the customer
  • Customers trust you to deliver a valid gift card, and if there is a problem, it’s relatively easy to find someone to help them
  • Buyers are already logged in to your site; it’s super easy to get a promo in front of them
  • Funding the card has almost zero cost with “on-us” funds transfers
  • You can sell a mix of real and/or electronic (see note 3) store cards, prepaid/reloadable Visa/MasterCard/Amex
  • You can save previous info (recipient name, address, birthday, etc.) so customers can purchase again and again with a single click
  • Knowing the user’s location and spending patterns, you could deliver targeted card offers
  • Electronic cards can be stored in the bank’s mobile wallet and used at the POS

A gift card program is not without costs and risks. But you can choose to outsource most of that by working with third-parties such as the Blackhawk Network (see 2012 Finovate demo; Gift Card Mall screenshot below), CardLab (screenshot below), or others.

Bonus #1: For extra credit, you could get into the gift card exchange game, facilitating the buying and selling of preloaded cards. While a unique and potentially valuable service, it has more customer education, service, and fraud issues. See CardPool screenshot below. 

Bonus #2: Distribute thin gift cards through ATMs, see Better ATM Services (FinovateSpring 2013 demo).


CardLab offers hundreds of gift card choices at (13 Dec 2013)
Note: “Design your own” option mid-page





Cardpool gift card exchange for buying and selling



1. See our July OBR report on prepaid card opportunities (subscription) for more info.
2. Though labor costs would have killed profitability, unless branches invested in POS technology to automate the checkout process    
3. offers the option of printing out a facsimile of an e-card to wrap up for a real-world gift.
4. See our September OBR report (subscription) for another 499 bank opportunities.

Monday Fintech Four

image Editor’s note: This was supposed to be the Friday Fintech Four, which is much better alliteration. But alas, it didn’t get published, so here’s the belated Monday version.

<drum roll> Here are the four most surprising fintech developments of the past week (in no particular order):


One: Stealthy mobile payment startup Clinkle hires long-time CFO of Netflix, Barry McCarthy, as its COO

image McCarthy was CFO from 1999 to 2010, taking Netflix public in 2003, then overseeing its finances as a public company for seven years. It’s pretty unusual for a big-name public company exec to take on an exec role at a startup, especially one in mobile payments. And one that hasn’t even officially launched yet to boot. McCarthy is on the board of three startups: Chegg, Eventbrite and Wealthfront, a startup in the investment space.
    >> LinkedIn profile of McCarthy
    >> A nice overview of the news at TechCrunch 
    >> An interview with McCarthy at AllThings D


Two: New mobile PFM, Level Money, beats Square Cash to #1 in iOS app store (finance)

image As soon as Square launched its P2P payments app, Square Cash, it quickly rocketed to number two in the Finance section of the iPhone app store (see Chart 1 below) and number 55 across all free apps in all categories. But it never got higher, and a week later it’s hanging in at number 11.

The reason it missed the top slot? Another newcomer, Level Money, a great-looking new PFM, was being featured by Apple in the App Store and maintained the top ranking during that period (see Chart 2). During its time as a promoted app, Level Money maintained a top-20 ranking among all 500,000+ free apps (see Chart 3).

    >> Netbanker post on Square Cash
    >> Distimo app rankings for Square Cash (see following chart)


Chart 1: Square Cash app ranking in Free Finance in Apple App Store


Chart 2: Level Money app ranking in Free Finance in Apple App Store


Chart 3: Level Money ranking among all free apps in the Apple App Store



Three: Amex customers have put $1 billion into its Bluebird prepaid card

At this year’s SourceMedia Payments Forum, American Express revealed key metrics about its highly touted Bluebird prepaid program sold in Walmart stores:

  • 1 million new accounts
  • $1 billion in total loads
  • Average load of $1,000 per account
  • 87% of accounts new to Amex
  • 53% over age 35

Thanks to the attendees who tweeted the metrics @leimer (Bradly Leimer) and @JimMarous among others.



Four: Four fintech startups snapped up last week

Compared to other tech sectors, fintech has experienced less M&A activity in the past few years. Everything moves a little slower in a highly regulated, fraud-magnet segment. Buying fintech is not like bolting on a photosharing app. That said, it was a busy past 10 days on the M&A front:

  • Betterment buys ImpulseSave to boost its auto-savings features (Finovate post)
  • UK’s FundingCircle buys Endurance Lending to enter U.S. market (Techcrunch)
  • Blackhawk acquires Intelispend (Digital Transactions)
  • Wonga buys Germany’s BillPay to expand outside United Kingdom (Techcrunch)

Photo credit: Fab Festival

New Online Banking Report Published: Opportunities with Prepaid & Gift Cards

image Many pundits like to talk about how banks have dropped the ball in digital (online/mobile). We take a different view. Banks, especially in the United States, have lost essentially zero market share to Internet-based incumbents (note 1). It’s a hyper-competitive market and banks have pushed forward to defend their turf from other big traditional brands. Way to go capitalism.

Of course, it’s easy to find things that could have been done better. That keeps us in business. But if you compare the pre- and post-Internet market share in banking to almost any other industry, it’s amazing just how well the big brands have fared, at least against web-based upstarts (note 2). 

But there are certain product areas where traditional financial institutions have lagged. And one of the most obvious is prepaid/gift cards. Banks have understandably clung to the checking/debit card model with its river of fees, penalty and otherwise. But new regulations are severely restricting the revenue flow, so it’s time to look elsewhere. 

There is a multi-hundred billion market for prepaid and gift cards globally, and banks have just scratched the surface. Partly, it’s because Safeway and other large bricks-and-mortar retailers have more foot traffic to sell the plastic. But it’s also because banks just aren’t geared to sell things that don’t require a 30-minute session at the new-accounts desk.

But as prepaid card sales, distribution and account management moves to mobile, banks can put themselves back into the picture in a big way. We encourage you to download our latest report to help you make the case to boost your investment in prepaid. Good luck!


About the report

New Opportunities with Prepaid & Gift Cards (link)
How banks can best tap into this massive market

Author: Ray Graber, Graber Associates

Editor: Jim Bruene, Editor & Founder

Published: 8 Aug 2013

Length: 28 pages, 9,000 words, 15 tables

Cost: No extra charge to OBR subscribers, US$395 for others (here)

Companies mentioned: American Express, BlackHawk Network, Chase Bank, Chemical Bank, GoBank (Green Dot), MasterCard, Navy Federal, Credit Union, netSpend (TSYS), State Credit Union, U.S. Bank, Visa, WalMart


1. ING Direct is the one exception on the deposit side. Before being acquired last year by Capital One, they’d built an impressive franchise through the online channel. However, they were also an offshoot of a very traditional European bank, so you can’t really call ING Direct an upstart.
2. Crowdfunding/P2P lending may well be an area that finally begins to impact traditional banking revenues. But that’s still a ways away. See our May 2013 report for more info (subscription).

Financial Innovation Marches On, Even in July

image I subscribe to about 800 blogs/alerts and usually find one or two new fintech companies, potential Finovate presenters, every single day. But July was slower, with the pace of new companies dropping to a few per week. Even though I know summer tends to be quieter, I always start wondering if we’ve finally invented everything…then I wake up to my RSS feed this morning and find two clever new services launching today:  

  • Crowdsourced home values: Everyone who owns a home wonders how much it’s worth. But unless you have a real estate agent in the family (and even then, they are probably biased to the high side), it’s a time-consuming and not-so-exact science to get a professional appraisal. Enter Redfin’shome price whisperer” service. Participants simply submit their house address and target price, and the company will have 250 others users give the valuation a thumbs up or thumbs down. While it won’t put realtors out of business, it’s a great way to get a quick handle on where you stand on what can be a key part of your financial security. (Another new startup, Trov, just landed $6.8 mil to help value less liquid assets).
  • Scam-protection geared to the elderly: Ever since Y-Combinator (YC) spawned a pair of billion-dollar companies during the Great Recession (AirBnB, Dropbox), I’ve been watching closely to see what its graduates will offer up to the financial services world. At FinovateSpring last May, we saw 2012 YC graduate LendUp (watch its Finovate demo here) wow the audience (and win Best of Show) with its service to lift consumers out of the payday lending cycle into less-expensive bank credit products. In a similar vein, 2013 YC graduate True Link Financial just announced a service to protect consumers, especially the elderly, from getting scammed by misleading or downright fraudulent charitable solicitations and other gray charges (it’s like BillGuard, but trying to block the questionable charges first, rather than dispute later). It’s basically a $20/yr prepaid card with customizable spending controls.

image So, it looks like we have officially moved into the second half of the year and all the fintech excitement that will bring. I’d be remiss if I didn’t put in a plug for the upcoming FinovateFall, where we’ll have 72 demos (full list here) offering up a plethora of new ideas. The early-bird deadline is Aug 2. So register now and save. 

Metrics: Mobile Traffic at Six Large Prepaid Card Sites

image In March, we reported on the mobile traffic at the 10 larget U.S. banks. Across all ten banks, an average of 20% of users were mobile-only.

Today, comScore provided similar numbers (note 1) for major prepaid card issuers in Q1. And the mobile lift was even more dramatic. Across the six major issuers, the incremental traffic through mobile browsers (not including native apps) ranged from 23% at to 80% at Netspend. The weighted average lift across all six was 43%.

Bottom line: While we need conversion rates to gauge channel profitability, it’s clear that mobile users are a large potential market for prepaid issuers.


Table: U.S. desktop and mobile browser traffic at six large U.S. prepaid card sites
millions of unique visitors, age 18+ (Feb 2013)

Q1 2013 Total Desktop Mobile* Mobile Only Mobile Incremental**
netSpend 1.4 mil 790,000 670,000 630,000 80%
WalmartMoneyCard 1.1 mil 930,000 230,000 210,000 23%
Rush Card 980,000 710,000 290,000 270,000 38%
Green Dot 820,000 560,000 270,000 260,000 46%
Account Now 600,000 450,000 150,000 140,000 31%
Amex Bluebird* 370,000 240,000 130,000 130,000 54%
  Total*** 5.3 mil 3.7 mil 1.7 mil 1.6 mil 43%

Source: comScore, monthly unique visitors in Q1 2013 (methodology)
*Includes traffic only from mobile browser, except American Express BlueBird, which also includes native app
**Mobile-only divided by desktop base
***Includes some overlap of users visiting multiple prepaid issuers


1. The banking numbers in March included native app traffic. The prepaid card traffic estimates exclude any native app traffic, except for American Express Bluebird which has both native and mobile browser traffic.

Square Expands its Payments Footprint with Virtual Gift Cards

imageAs the first billion-plus payments startup since PayPal, I’ve been looking forward to watching Square deliver on those hefty expectations.

We got a glimpse today of where it’s heading as the company rolled out virtual gift cards. That’s a business with as much potential as anything it has done to date (note 1). 

And it’s available now at any of the 200,000 merchants that accept the Square Wallet.


How it works

Square mobile app with Gift Card option Consumers can use their Square Wallet app to purchase a virtual gift card ($10 minimum; $1000 max) for any Square merchant. It can be sent immediately to any email address right from mobile app, which is integrated with iPhone contacts.      

As show in the inset, the gift card option is shown under each merchant’s "page" within the Square Wallet app (above the fold).

Square holds the funds until redeemed. The virtual card can only be used by the recipient at the designated merchant using Square’s processing services. In the event that the merchant stops taking Square, the funds will be cashed out and placed in the recipient’s Square wallet for use at any other Square merchant.

Recipients can potentially redeem in three ways, but the last two options only work for merchants that support bar-code scanning at the POS:

1. Square Wallet app
2. iPhone Passbook (if merchant accepts Passbook)
3. Printing or displaying the QR code sent in the original email to recipient (if merchant supports QR code scanning)

If the recipient does not accept the gift card within 90 days, the money is returned to the sender.

So far, there are no fees or expiration dates for the gift cards. But the company must comply with a thicket of state rules on abandoned property and escheatment, so dormant cards are not pure profit unless Square institutes some type of inactivity fee down the road (note 2).

Bottom line

While messy, gift card issuing is a great business that offers numerous monetization avenues (note 2). It demonstrates how potentially lucrative it can be to be both the transaction acquirer and wallet/card issuer. That’s what’s sending Square’s value to the stratosphere. 


1. Email from Square to the gift card recipient


2. The Gift Card "wrapper"
Note: This is one of four designs the sender selects from


3. The Gift Card then needs to be "saved"


4. Non-Square customers are prompted to open a Square Wallet account
Note: For those that don’t want to open a Square account, an "print" option is offered (at bottom of screen), but the merchant must support bar-code scanning for that option to work (see next screenshot).


5. If the merchant does not support bar-code scanning, the gift card can only be redeemed through Square Wallet



1. Here are the current Square business initiatives:

  • Merchant acquiring
  • POS systems
  • Merchant analytics
  • Mobile wallet
  • Merchant discovery/offers/ads
  • Starbucks relationship
  • Merchant loyalty business

2. Currently, Square tells users in the app that "Gift cards through Square have no fees and never expire." So, it doesn’t sound like they’ll be monetizing with inactivity fees anytime soon. 

American Express Now Serves Walmart with Bluebird Prepaid Card

image Wow, the national press jumped all over the American Express and Walmart partnership to sell/service the Amex-branded Bluebird prepaid card nationwide (882 articles linked from Google news).

Analysts waxed eloquent about how Walmart is building out its “banking” services and how much cheaper the prepaid card is compared to a checking account.

But in fact, there will be little impact on Walmart shoppers, who can already buy a similar Walmart-branded prepaid Visa card in its stores. And that Green Dot-powered Moneycard will continue to be available, though it sounds like Bluebird could get more prominence. But that will depend on which company is paying the highest slotting fees/revenue share. 

But what almost all the press coverage overlooks is that Bluebird is only good at locations that accept American Express (4.5 mil in US), whereas the Green Dot card is good anywhere Visa is accepted (8 mil in US). While most major retailers take both (note 1), that’s still a huge difference in value for many Walmart customers.

Look at the current Walmart financial services menu (pre-Bluebird). It already offers every money-handling service under the sun, including a general purpose reloadable prepaid card with no fees for heavy users (see screenshot below).

Walmart MoneyCenter homepage (9 Oct 2012)


Pricing for both the Amex Bluebird (inset) and Visa MoneyCard are low (see below). The main difference is that BlueBird eliminated monthly fees, while MoneyCard charges $3 per month for anyone who loads less than $1000.

Bottom line: Amex got amazing press out of the deal that should help establish it as a leader in prepaid. But it’s a real unknown how many Walmart shoppers want to carry around an Amex card with less merchant acceptance.

I think it may even cause quite a bit of confusion in-store if the BlueBird card is pushed ahead of the Green Dot version.

And while American Express seems to have made important in-roads, it’s not possible to assess the ROI since we do not know how much it is paying Walmart for the distribution deal.


Current MoneyCard fees (9 Oct 2012)
Note: Monthly fee is waived for those loading at least $1000 per month to the card



1. Costco takes only American Express, so score one for Bluebird.
2. Customers involved in the Bluebird pilot (sold this year at 80 western U.S. Walmarts) must close their old account prior to 8 Dec 2012 and open a new one. The company is offering a $20 bonus to cover the hassle (link).
3. Amex acquired the website which currently redirects to A greeting card company operates, which currently ranks high on Google, but will get crushed by once the product launches nationwide.

Launching: Automatic Location-and-Merchant-Based Prepaid-Card Reloading with Spending Controls

image That’s a lot of buzzwords in one title, but they’re all necessary to describe the payment innovation being tested by MoviePass.

MoviePass is a new service designed to do for physical movie theatres what Netflix did for rentals, turning movie-going into an all-you-can-eat subscription service. For $25 to $40/mo (depending on where you live), MoviePass allows you to attend as many movies as you like (but no more than once per day; note 1).

However, the company has had trouble getting theatres on board, who are rightly concerned about cannibalization. So the startup has been working on ways to get around the need to have theater partners. They tried in-home voucher printing, but it proved cumbersome and still required some level of theatre participation.

So MoviePass invented a clever workaround using a proprietary prepaid debit card. The new system allows subscribers to go to any movie at any theatre in the country, as long as they accept debit/credit cards. The service is in private beta with 1,500 users. You can add your name to the 75,000-person wait list here.

MoviePass iphone app Here’s how it works:

1. User goes to the theatre location and checks in using the MoviePass app (inset). The check-in only works within 100 yards of the theatre.

2. MoviePass then adds the price of the movie to its prepaid card.

3. Consumer walks to the window and purchases a ticket with the MoviePass card using up the entire balance (note 2).

It’s a clever mashup of GPS, point of sale, mobile and payment technologies.

Relevance: No word on who’s powering the card, but hopefully we’ll see it used in other applications. It could be a solution for youth spending (parents preapprove locations/amounts), employee purchases (employers preapprove locations/amounts), or rewards/offers (money appears on your card only when you check in at specific locations).


1. Clearly, the company won’t be able to make a return at $40/mo unless they cut deals with theatres for discounts (especially to fill second-run and weeknight seats), which is the end-game here. At a cost of $5/ticket, it probably works. At $10 per ticket, movie buffs hitting theatres two to three times per week are going to kill the model.  
2. Presumably, MoviePass has controls that limit the purchase to the theatre where the checkin occurred. And it must be limiting checkins to the registered phone only, otherwise the card could be passed to friends and the biz model won’t work. I also assume MoviePass will confiscate any unused balance if the ticket price is less than what was advanced or if the customer doesn’t buy a ticket.    
3. It would be interesting if they also partnered with RedBox so you could get unlimited DVD rentals AND theatres in one monthly price.