CONSUMERS EMBRACE STORED-VALUE PROGRAMS
by Laurie Freeman
Retailers are flooding display shelves this holiday shopping season with gift cards, Stored-value cards that retailers hope soon will supplant paper gift certificates.
The proliferation of gift cards is hard to miss. Visitors to Target stores find a display of gift cards prominently dangled on merchandising shelves at each check-out register. The cards, which come in denominations of $10, $25, $50 and $ 100, are pegged neatly at the top of each merchandise shelf, each sporting its own cover art.
At Blockbuster Video store--one of the first retailers to offer electronic stored-value cards--gain point-of-sale placards immediately went up after Halloween greeting customers even before they entered the store. Clerks also ask customers whether they would like to purchase a card as they are checking out video games and movies.
Plano, Texas based J.C. Penny Co., which introduced its gift card last year, is running TV commercials for the card for the first time this holiday season. Radio Shack is introducing its gift cards nationally this year as well. They join such retailers as Sears, Roebuck and Co., Federal Department Stores Inc., Old Navy, Kohl's, Saks Fifth Avenue, and Kmart Corp., which launched gift card programs in 1998.
"Electronic stored-value cards have been explosive in the gift card area" says David Falk, vice president-marketing and business development, DataMark Technologies, North Brunswick, N.J.., which handles loyalty and stored-value programs for companies such as J. Crew, Ruth's Chris Steak House, Brooks Brothers, and Electronics Boutique. "It's become clear this year that virtually every serious retailer has either established a program," or have at least explored whether such a program is feasible, says Falk.
According to industry executives, the paper gift certificate category is about $15 billion. In 1998, gift cards sales were pegged at $3.2 billion. "The potential exists for it to really take off this holiday", says Falk.
Expanding the concept
Stored-value gift cards, however, are not only category for which many card industry executives see a bright future.
Stored-value cards already are well established as prepaid phone cards, and ,increasingly, they are the preferred method of payment for mass-transit commuters. The cards are being touted as an easy-to-carry replacement for paper traveler's checks, and they also are being positioned as a convenient way to pay for purchases made on-line.
The Chicago Transit Authority, which rolled out its Transit Card two years ago, says ridership on the system continues to rise largely because of increased use of the rechargeable card. In the first five months of 1999, the CTA gained 6.2 million customers compared with the same period last year . During May 1999, overall pass and permit ridership increased systemwide by 78.4% from 5.5 million rides in May 1998 to 9.8 million rides in May of 1999.
Spend and Win
This summer the agency ran a promotion called "CTA take it and win" which encouraged customers to log onto the CTA site on the World Wide Web(www.transitchicago.com) to see if the serial numbers of their active farecards or CTA passes were instant winners. If a serial number on a card matched a pre-selected winning serial number, the customer won the prize shown.
The grand prize was two round-trip tickets on United Airlines to St. Thomas, Virgin Islands. The promotion was handled by LEC, a Chicago-based advertising agency, along with Little & King Co., located in Amityville, N.Y.
The CTA spent $200,000 on TV, Radio, and print ads to promote the sweepstakes, an investment that apparently paid off. More than 25,000 entries were entered into the CTA site; more than 90% had not previously visited the CTA's site, analyst of the promotion revealed, says Laurie Cairns, LEC president.
"We have seen demand for the(Transit Card) increase to the point that we are exploring additional outlets for selling and recharging the cards" says Craig Lang CTA senior vice president-technology development, currently, the cards, which can hold up to $100 in stored value but only allow the purchase of transit rides, must be purchased from a designated CTA vendor or at transit stations.
Last month, the CTA released a request for proposals for point-of-sale distribution system that could be made available to local Chicago merchants.
"In the near future , our expectation is that we can expand the number of purchases that can be made using the Transit Card". says Lang.
Using stored-value cards as a replacement for small denomination transactions" is Beginning to catch on" says John Almash, President, Stratcom, a consultancy division of DeNovo Corp., Hockessin, Del." It's a replacement for coins and paper, which consumers increasingly are showing a willingness(to replace) with a plastic card."
Rolling Along
AAA, the automobile club, has teamed up with Boston-based FleetBoston Corp. and Visa U.S.A , Foster City, Calif. , to test two stored-value cards, positioning the prepaid plastic as an alternative to paying with cash.
The test is being conducted through 20 AAA offices in Michigan and Missouri. The two customized AAA products--AAA MemberCash card and AAA MemberOne card-- are designed to allow both domestic and international travelers to gain secure and convenient access to money both in the United States and overseas. The AAA MemberOne card is the store-value card for use anywhere Visa cards are accepted; the AAA Member-Cash card allows AAA members to access cash in local currencies at Visa ATMs worldwide.
" We envision these cards will become successful complements to other payment methods we already make available to our members," said Tom Wilt, managing directed, AAA partnership programs , in a written statement.
AAA is promoting the stored-value cards through its membership mailing, including full-page ads and feature stories in its monthly magazine. In the test-market offices, AAA members are being asked it they would like the card instead of travelers checks.
Such pilot programs are meant to help assess how stored-value cards can meet customers needs, adds Michael Curran, executive vice president-managing director of FleetBoston's Global Services Division. "We have many commercial as well as retail customers who could benefit from stored-value technology," he says.
On the fast Track
Separately, Visa U.S.A. is moving forward in its quest to further displace cash and checks by accelerating development of stored-value products through its partnership with ClaimCard, a developer of magnetic-stripe-based payment processing technology.
The pilot program with AAA and Fleet-Boston is the first partnership Visa has announced following the alliance with ClaimCard. " We are definitely going to see more activity with stored-value cards moving forward. "says Robert H. Baker, senior vice president-consumer debit products at Visa. "We foresee a number of opportunities where scored value can make inroads, now that (the gift card programs) have captured the attention of American consumers."
Baker predict stored-value cards will expand beyond retail and cash replacement cards into the realm of insurance, where stored-value cards could be sent to customers in lieu of a check for claims.
Stored-value cards may become the accepted substitute for checks in the institute for checks in the insurance industry, and they also hold potential to become the replacement for payroll checks and expense reimbursement payments, says Tom Recktenwald, executive vice president of Louisville-Ky. based Store Value Systems. The company runs stored-value card programs for Kmart; gasoline companies such as Mobil, BP, Exxon, and Citgo; and for retailer American Eagle Outfitters.
"We see interest developing to have these products evolve into total cash replacement," he says. "For the insurance industry, for instance, the cards could be programmed such that the card would be invalid if, for instance, a customer tried to use the card for a purchase other than for what the insurance company paid out the claim for."
All Net
There also will be virtual versions of stored-value cards that will enable Internet users to pay for purchases on-line.
eCharge Corp is preparing for the launch of its Internet purchase accounts that will give Internet users the ability to sign up for their accounts online, get real-time account approval, and set spending limits on the account.
"Once money has been placed in an account, it can be drawn down upon like an offline stored value-card, " says Linda Weber, vice president-credit products at Seattle-based eCharge. This online version of a stored-value card "allows people to prepay and manage their online spending. For others it's a convenience and financial management tool."
Research conducted by eCharge found that consumers dislike being "surprised" by the amount of money they may be spending online, says Weber. "One person told us that funding a prepaid, stored-value account helped him keep a limit on what he was spending every month on online gaming," she adds.
Personal financial and shipping information will be collected once users sign up for eCharge. When making purchases, Internet users will click on an eCharge logo on participating merchant Web sites.
eCharge expects to launch its online service during the first quarter of next year. The company currently is presenting its program to merchants.
The battle continues
For stored-value cards to completely replace paper money and coins, however the cards must be developed to the point where one card can be used for multiple transactions, says Datamark's Falk.
"I think we'll start to see the beginnings of that concept next year, " he says. "Retailers may elect to work with each other to develop a card that can be used in more than one specific retail outlet."
