Whether saluting an employee of the month with a "Spirit Award," hailing a worker for perfect attendance, or just recognizing a diligent employee for a job well done, managers at Guarantee Trust Life Insurance Co. have concluded that nothing says "thank you" quite as well as a MasterCard pre-paid gift card."I've gotten fabulous feedback" from employees who have received the gift cards, says Carol Goodman, quality coordinator in the human resources department at the Chicago-area insurer.
In myriad ways, prepaid gift cards are catching on. As at Guarantee Life, many businesses are using the new version of MasterCard and Visa plastic which resemble credit cards and mimic their use but are only good for a set-amount of cash value as rewards, incentives and motivational tools. Some companies are even using gift cards as substitutes for payroll checks, an increasingly popular item for businesses with contingent workers or other employees who do not have regular checking accounts. Retailers and merchants, moreover, are employing gift cards as a lagniappelittle extras dispensed as tokens of their appreciation for their best customers or as added sweeteners in sales promotions.
And now banks, which had not been in the forefront of the movement, are joining the gift-card parade. They have begun pitching the gift cards to retail customers, businesses, branch walk-ins and Internet consumers as the perfect gift idea for birthdays, graduations, and other special occasions. This holiday season, several banks are ramping up their marketing operations and making a big push to build awareness and pique consumers' interest in the product.
"We've sold more than two thousand in the first three weeks," says Sarah Grotta, senior vice president in the consumer banking division at Cleveland-based KeyCorp, which began offering the product in October. "I've been surprised by the response we've gotten from businesses," she adds. "They've been buying them in blocks and using them as spiff'a giveaway to their best customers," she explains.
The idea is not new. Pre-paid telephone cards have been around for a long time. Retail outfits like Barnes & Noble, Bloomingdales and The Gap have been urging customers to use their branded, pre-paid store cards as gift certificates for several years. And many banks and their affiliates including Bank One Corp. and Fifth Third Bancorp.have been heavily involved in partnerships with major retailers and consumer products companies in a wide range of promotional and marketing campaigns. So advanced is the industry, according to a Bank of America marketing executive, that consumers will spend $32 billion using the plastic in 2001.
Nor have MasterCard, Visa and American Express been Johnny-come-latelys. All have made a concerted effort to vend pre-paid plastic in the corporate marketplace. Usually working in concert with marketing companies, the credit-card concerns have been competing with sporting goods companies, hotels and resorts, watchmakers, and leather goods and luggage-makers in proffering their products as rewards to high-achieving employees or for use in corporate motivational and recognition campaigns.
What seems odd, though, is that banks have taken this long to clamber onto the bandwagon and promote the pre-paid Visa and MasterCard products to the general public. In fact, several banks have even worked with retailers and merchants to produce private-label, pre-paid gift cards. Bank One Corp., for example, partnered with Coca Cola in a 1998 give-away campaign to offer a pre-paid cash card as a prize. "We had a summer promotion for Coca Cola," says Thomas Kelly, a Bank One spokesman. "In every 100 cases, there was a card worth $25 or $50."
Even now, only a clutch of major banks, including KeyCorp., Citigroup and Bank of America, are embracing the productwhich Theodore Iacabuzio, a senior analyst at the consulting firm TowerGroup, calls "basically a souped-up traveler's check"with real gusto. "I've only started seeing banks offering the gift cards in the last year," says Julie Malveaux, public relations manager at the American Bankers Association in Washington, D.C.
That is surprising because pre-paid gift cards appear to be so profitable. And since they are pre-paid, of course, banks get the money up front and have use of the moneyor the floatuntil the cards are eventually used. And then there are the seemingly interminable number of fees. For a pre-paid gift card of $100the average purchase since it began offering the product Sept. 18, says Gus Lejano, product manager for pre-paid cards at Bank of AmericaBofA and Citigroup charge a $5.95 purchase fee on top of the value of the card. Key sells the same card for $3.95, the bargain deal of the group. For pre-paid gift cards in the $300-$600 range, Bank of America's purchase fee shoots up to a pricey $7.95.
In addition to the float and the purchase fee, the cards, which are generally good for three to six months, make money for the banks in several additional ways. Key's MasterCard is a good example: it carries a $1.00 fee for each use of an automated teller machine or cash advance. The card also entails a 25-cent fee for either an ATM balance inquiry or a point-of-sale transaction using a PIN. And don't forget about the $1.00 expired-card fee, which is charged if there is a remaining balance at the expiration date and the card must be renewed. The gift cards also carry a $2.50 processing fee imposed when card-holders seek the return of unused balances, which is done in the form a check. A $2.50 processing fee is also exacted when restoring a card after the original was lost or stolen.
Greg McBride, a financial analyst at Bankrate.com, a research and publishing organization in North Palm Beach, Fla., notes that banks and credit card companies are likely to profit on pre-paid cards in other ways. He reckons that there will be spillage: Many consumers will either not redeem their card at all or will fail to use the full value of the card by the time it expires. For others, lost or stolen cards will just not be reported. "Particularly for smaller denominations, I think it would be cheaper for the gift-giver to either hand over cash or write a check," he says.
Maybe so, but no one is quite ready to yell highway robbery or to call Ralph Nader; consumer groups are expressing only mild criticism. "This is more expensive than giving cash or a check" as a gift, says Stephen Brobeck, executive director of the Consumer Federation of America. "But if the cards are attractive and the giver thinks that the recipient would much rather have it than cash or a check, then this is not really a costly item.
"As long as consumers understand the product, it's not worth making a fuss about," he adds.
Card proponents are betting that customers are so taken with the cards' appearance, convenience, utility and other qualities that they are willing to overlook the price. In a recent survey of 150 customers, says Bank of America's Lejano, customers were asked to grade the pre-paid gift card. Using the A to F benchmark of a standard report card, he says, more than 90% of those queried gave it an "A."
KeyCorp's "Key Possibilities Card" is fairly typical of the pre-paid, gift-card genre. Here's how it works: For $3.95 plus the value of the card, a gift-giver purchases a shiny card that looks for all the world like a regular MasterCard, with the ubiquitous red-and-yellow intersecting globes that MasterCard has managed to make as recognizable as McDonald's golden arches. Key's offerings, which come in increments of $25, $50, $75 or $100, also bear the familiar hologram and a 12-digit number.
To both educate consumers and drum up interest in the new plastic on the block, all three issuers are employing a broad range of marketing techniques. These include press releases, enclosures in customers' monthly statements, Web-site advertising and promotional literature and signage in bank lobbies. In a test-marketing effort, Bank of America has plastered shopping malls in North Carolina, northern Virginia and Texas with billboards and posters.
Key's card is not only usable at the 21 million locations MasterCard is accepted worldwide, but can be used at automatic teller machines on the MAC, Cirrus, Maestro and Star networks to withdraw cash. The cards also come equipped with a personal identification number, making possible transactions at point-of-sale terminals requiring a PIN, such as grocery stores or restaurants. The card-owner must sign the back of the card, as with any credit card, to validate it.
There is a toll-free, customer-service telephone number listed on the reverse side of the card as well. This number can be accessed any time of day or night by the cardholder to ascertain the value remaining on the card or to report a lost or stolen card and begin the process of obtaining a refund.
The most fetching feature of the pre-paid gift cards, Lejano says, is that they are fungible. He makes the point that, while a Macys' card worth $100 certainly constitutes a wonderful gift, their merchandise is hard to find in North Carolina, for example. On the other hand, a pre-paid gift card for $100 is just about the next-best thing to cash. "If you want to buy something at a yard sale, you can stop by an ATM and use the card to get cash," he says.
That, of course, is the selling point most emphasized by other marketers. Ted Dargan, vice president in the emerging markets division of the member relations group at MasterCard International, goes so far as to say that the pre-paid gift cards "empower" consumers. Adds Key Bank's Grotta: "That's why we call it Key's possibilities' card. If you go to Barnes & Nobles, you can buy books and a latte too."
Consumers also like the fact that the cards are protected against loss and theft, survey data show. And the fact that many of the cards can be embossed with a terse personal message - no more than 21 characters, says Lejano, or about enough space to say, "Happy Birthday, Joan" also scored high with prospective purchasers.
Merchants and banks perceive still other benefits, asserts MasterCard's Dargan. The plastic is easier to process and less messy and error-prone than the cumbersome paper gift certificates that stores had used in the past. For banks, meantime, the product is a good product not just for current customers but a good way to induce non-customers to stroll into the bank lobby and get acquainted. Once a one-time customer has purchased the gift card and done business with the financial institution, he or she becomes fair game for a bank's follow-up marketing efforts.
Despite this groundswell of enthusiasm, many bankers sound content to remain on the sidelines. A spokeswoman for the credit card division at FleetBoston Financial Corp., Deborah Pulver, said the Boston-based bank was concentrating on other credit card products, particularly its "Fusion" card, which contains a smart chip. "We feel that we've got pretty good products and can grow the company based on the products we have," she says. "This is where we see value."
Others say they are either considering the gift-card idea or closely monitoring the market for the upstart product. "We're evaluating them, but we are not going to have them this holiday season," says Susan Stanley, a spokesperson at Wells Fargo & Co. in San Francisco.
Kelly, the Bank One spokesman in Chicago, says that right now it is making only limited use of the product. "We have the technology and infrastructure," he says, "and we have provided gift cards for other companies. So there are lots of different things we can do. But this year we're not offering them to our customers."
Fifth Third Bank, which owns the Midwestern Payment Systems, offers private label cards in partnership with some 300 customers and can offer Visa and MasterCard versions as well, says Barry Boerstler, an executive vice president at MPS. As for mass marketing the product, "it's most likely that we would do that through the Internet," he says.
But as consumers gain more familiarity with the pre-paid gift cards, chances are that the spectators will join the game. MasterCard's Dargan is sure that the plastic is destined to become a fixture in American's wallets and pocketbooks. I think the market has vast potential."
