Blockbuster Entertainment Group, the video rental giant that began offering a cobranded credit card last March, is testing a stored value card in Salt Lake City - without a bank.
The Value Card, which uses magnetic stripe technology and is disposable after use, sells for $15 but allows holders to buy $20 worth of goods and services at 25 Blockbuster Video and Music stores, and Discovery Zone play centers in Salt Lake City.
"We are very enthusiastic about the results right now," said Michael Caruso, a Blockbuster spokesman.
Sales have been brisk. Mike Rocco, an employee in Salt Lake City, said 300 cards were delivered to his store in late July and only 30 were left as of Aug. 22.
At another location, the cards sold out completely, an employee said.
Each store received 300 cards, which are valid until yearend, but will not get more for this phase of the test.
"A number of people in the industry feel that a closed-environment stored value product is the best way to get this type of new payment system started in the U.S.," said Joseph Schuler, a consultant who was recently hired as a senior vice president for National City Stored Value Systems, a new business unit of National City Corp.
Mr. Schuler said the public response to Blockbuster's test validates research indicating that stored value as a cash substitute is readily accepted by consumers.
In the test, consumers can buy the card at a Blockbuster counter. The card is swiped in the same terminal used for credit and debit cards. The purchase amount is debited and the customer is informed of the value left on the card. Customers also can call an 800 number to find out their balances.
Mr. Caruso would not comment on any national rollout plans, but he said Blockbuster is "very interested in exploring a variety of options and will make a decision in the near future."
When asked about using smart cards with embedded computer chips, he said the retailer is considering "any number of technologies that can make shopping more convenient for consumers."
One Salt Lake City employee said the cards are selling "because they're such a good deal."
While consumers benefit from the $20 of value on a $15 card, Blockbuster has the float - and interest income - on unspent funds. If cards are lost or not used by Dec. 31, Blockbuster keeps the money.
"Obviously, if we enter into something like this, there has to be a financial reason for doing so," said Mr. Caruso. "We think there's a way to offer greater utility and more convenience to customers while making business sense for us."
Rumors are spreading that Blockbuster is negotiating with additional merchants to accept the card, but Mr. Caruso would not confirm them.
A recent Business Week article reported that Blockbuster and McDonald's Corp. are discussing a smart card that would be accepted by both retailers. Again, Mr. Caruso had no comment.
Although Blockbuster is issuing the cards without the cooperation of a bank, "it opens the door for them to participate if the project expands to other merchant locations," said Mr. Schuler.
Regulations on funds clearing and settlement would make it impractical for Blockbuster to develop an extensive electronic purse application without a bank partner, Mr. Schuler said.
