CashEdge Inc., known almost exclusively as an electronic payment provider, is venturing into new and potentially lucrative territory with plastic gift cards.

The New York company has added gift card sales to its person-to-person payment service Popmoney, which banks use to let consumers move funds to another person's bank account through the automated clearing house system. CashEdge designed Popmoney as a way to move funds without relying on anything physical — cash or card — but has recently incorporated both as it seeks to add ways for banks to profit from its service.

Popmoney users now have the option to send funds as a gift card instead of as an ACH transfer into a bank account. The retailer that offers the gift card shares transaction revenue with the bank and CashEdge. In October, CashEdge also added the ability for recipients to obtain funds as cash from MoneyGram International Inc. locations. CashEdge said banks might offer the MoneyGram link as a premium service for which they could charge a fee.

Analysts said these changes should make Popmoney more palatable to banks by making it more clearly profitable.

"CashEdge's adding gift cards to Popmoney is a tweaking of its strategy that will help accelerate banks' adoption," said Ron Shevlin, a senior analyst at Aite Group in Boston.

Brian Riley, senior research director for bank cards at TowerGroup, said that the gift card feature should improve bank demand for person-to-person electronic payments, which has been weak.

"P-to-P money transfer products such as Popmoney, [Fiserv Inc.'s] ZashPay and PayPal are products in search of an audience," Riley said. "The concept certainly works with global money transfers but has not found itself in the consumer market yet."

Consumers can order the cards through the Popmoney service on their banks' websites. CashEdge is using the card distribution network of Blackhawk Network Inc. of Pleasanton, Calif., to ship cards to recipients usually within 24 hours.

CashEdge said it is also allowing consumers to further personalize the look of the e-mail notifications recipients get for payments sent through its standard Popmoney offering. Consumers can add themes to indicate whether the funds are being sent as a birthday or holiday gift, for example.

CashEdge is tapping a highly lucrative market that banks have so far failed to get in front of. Consumer spending on gifts in the U.S. will reach $210 billion in 2010 and will involve 4 billion transactions, according to a December report by Aite. While cash will account for half of the gift transaction dollar volume, gift cards would be 22% of gift transaction dollar volume in 2010.

"I am very bullish and positive on" CashEdge's update to Popmoney, Shevlin said. "It's a very strong move … I think we will see a lot more of this [from banks] in the next year or two."

Catherine Palmieri, the global head of product and marketing for CashEdge, said, "we felt this was the next step in our evolution."

The gift cards are not reloadable, but Palmieri said they should appeal to banks interested in prepaid and reloadable cards.

"All of these are huge opportunities for the bank, not the least of which is revenues," Palmieri said.

CashEdge will offer cards for 40 retailers to start, including Build-a-Bear Workshop Inc., Dunkin' Brands Inc., The Home Depot Inc. and Sephora USA Inc.

PNC Financial Services Group Inc. and Bank of the West had both signed up to offer the product, Palmieri said.

Bank of the West said it is not offering the gift cards currently, but, "We are considering offering Popmoney gift cards, because we see them as a convenient way for our customers to use online banking to send gifts," said Jim Cole, a spokesman for the bank. Bank of the West, however, is already advertising the new Popmoney themed e-mail notifications on the home page of its website.

Teri Llach, the chief marketing officer for Blackhawk, said, "CashEdge is the first deal in this area, but it is something we are really interested in, and we will be looking [more] at peer-to-peer and gifting."

Riley said one of the challenges for CashEdge will be how easily its offering can be duplicated by competitors such as Fiserv and eBay Inc.'s PayPal. "The barriers to entry are not that high," he said.

Palmieri said the single-use gift cards will develop into other product offerings, such as electronic-only cards for online shopping, which CashEdge plans to make available next year.

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