-
A Northern Michigan gas station redesigned the payment process around drivers' IDs to deter dishonest motorists that were driving off without paying for their gas.
December 23
A California start-up is building what it calls the "Visa of prepaid." But it has a long ways to go before it becomes a household name.
Openbucks, of Redwood City, in September launched its product, which enables holders of prepaid gift cards from major retailers to shop online at other merchants' websites. Participating issuers include Subway restaurants, CVS drugstores, Sports Authority, Circle K convenience stores and Citgo and Hess gas stations. Consumers may use their cards to shop online at some 500 locations, mostly to access games.
When shopping at a participating merchant's website, holders of one of the participating retailers' gift cards enter the card number and the PIN on the back of the card after clicking on the Pay with Gift Card option.
Openbucks processes the transaction as one of the issuer's own and distributes the funds to the merchant making the sale. It charges the merchant accepting the card a percentage of the sale and shares the revenue with the card-issuing merchant, says Marc Rochman, Openbucks' president and chief executive.
Rochman declined to say how much Openbucks charges but says the company is trying to stay competitive with the interchange rates Visa Inc. and MasterCard Inc. apply to their card transactions. "We are building the Visa of prepaid," he says.
In addition, card-issuing merchants gain the benefit of more customers coming to their stores to receive cards and reload card accounts and the opportunity to use the increased foot traffic to sell their own products, Rochman says. At Subway, for example, 54% of consumers who have bought a gift card to buy a game online also have bought a sandwich in the store, and they have used 20% of the card value on average at Subway stores, he says.
"Breakage," or the value left unused in gift card accounts, is not good for retailers because it means consumers are not coming into their stores. "Retailers must give consumers more ways to use their cards," Rochman says. "They need to increase the utility of their cards and create more options to use them."
Unlike some gift card clearinghouses, such as Cardpool.com, GiftCardRescue.com and PlasticJungle.com, which charge a percentage of a card's value to enable consumers to trade it in for another retailer's gift card, Openbucks does not charge consumers using one of its customer merchant's gift cards to shop at other online retailers. "We believe $20 should be worth $20," Rochman says.
Openbucks also recently added an online music site, Grooveshark.com, and it is looking to extend into additional markets, including insurers and other companies that may have unbanked customers wanting a card-payment option, Rochman says.
"The idea is to enable people who don't have a credit card or who don't want to use a credit card to shop online at a retail outlet," he says. "We wanted to start with games, which represents a vertical where there's a need to pay among consumers who may not have a credit card, like teens, or those who don't want to turn over their credit card information."
The company plans to limit card-issuer participation to 20 to 40 merchants to avoid creating confusion by having too many gift cards usable at other merchants' sites, Rochman says. Openbucks' goal is to sign up card-issuing merchants that have a lot of point-of-sale locations.
Its six current issuing merchants have a combined 120,000 such locations, and consumers are using their gift cards to conduct "tens of thousands" of transactions through the Openbucks system monthly, Rochman says, citing as a goal to have 2,000 to 3,000 different sites accepting client merchants' gift cards by the end of next year.
Openbucks uses relationships with merchant processors Ceridian Stored Value Solutions and Vantiv LLC to support the card transactions.
By April, Openbucks plans to add mobile functions, including an application to store card information. The company also is talking with Google Inc. and PayPal Inc. about gaining access to their mobile wallets, Rochman says.
There is potential in the Openbucks scheme, says Brian Riley, senior research director, retail banking and cards, at TowerGroup.
"It's got to operate with a high mark-up, so gaming is a good channel," he says. "Anything that squeezes more value out of cards without increasing the fees is a positive."
Riley also foresees potential benefits if Openbucks can create long-term alliances that would enable companies to convert gaming points into loyalty programs. "It has the potential to build that kind of relationship," he says.
