How Coinstar Fuels Blackhawk's Cross-Channel Gift Card Strategy

The Coinstar brand has long been associated with spare change, but for Blackhawk it's the key to a diversified strategy for prepaid products and a catalyst for mobile wallet adoption.

"Consumers love physical gift cards and won't stop loving them, but our customers want more ways to engage prepaid services," says Teri Llach, chief marketing officer at Blackhawk in an interview on the company's partnership, gift card and wallet strategies.

Blackhawk will offer consumers electronic gift cards in exchange for coins deposited at Coinstar kiosks. The virtual cards can be spent at companies such as Gap, Lowe's, and Southwest Airlines. Outerwall, which owns Coinstar, is repositioning itself as a diversified payments provider. Outerwall did not make an executive available for an interview by deadline.

"Our customers will be able to access and get gift cards though multiple channels in multiple places, and the Coinstar partnership is a prominent example of enabling that goal," says Patrick Ramsey, a vice president and general manager for digital strategy and innovation for Blackhawk. 

By providing broader options and more channel flexibility for retailers to distribute and consumers to access gift cards, Blackhawk is also positioning itself for the future of mobile wallets. Providing mobile access to virtual cards also enables a company to more easily place gift cards alongside the other payment options in a mobile wallet, Ramsey says.

"We have been investing in technology to enable our card partners and all of the brands that we serve to drive more gift cards and more transactions into digital channels—and 'omnichannel' or digital channel and in-store experiences," Ramsey says.

Blackhawk is researching consumer preferences—particularly how they access and manage gift cards in different channels, Llatch says. "We don't think the physical gift cards are going away, but people are going to want digital channels to check their cards, balances or see their cards in a single location," Llatch says.

Blackhawk is also working with PayPal to enable distribution for PayPal's reloadable debit card across Blackhawk's retail merchant locations. The partnership will combine Blackhawk's reload service with PayPal's prepaid debit and reloadable products to allow consumers to top up their PayPal accounts at Blackhawk's merchants. The companies also plan to co-develop additional payment and mobile wallet products in 2014. PayPal, which also sells gift cards, did not return a request for comment by deadline.

"The PayPal partnership enables us to work with them as they do more in both the mobile and retail environment," Llach says.

Gift cards can be a way to boost consumer appetite for mobile wallets, which have been slow to catch on in the U.S., according to a CEB TowerGroup research note.

A slew of other mobile wallet technology and service plays, such as Google's purchase of the TxVia prepaid platform, have not resulted in swift uptake, CEB TowerGroup says. The research group cites the lack of a clear technology model and the uncertainty among consumers as factors that prompted mobile wallet initiatives to hedge by offering plastic cards.

The integration of gifting technology from PayPal or Blackhawk may add a feature to a mobile wallet that is convincing enough for consumers to want to adopt, CEB TowerGroup says.

"Blackhawk's 2013 alignment with PayPal brings the gift card to the PayPal wallet in a new perspective, adding direct merchant access," CEB TowerGroup says in its note.