Some banks long have sold postage stamps through ATMs. The U.S. Postal Service plans to return the favor by selling payment cards at post offices.
The federal agency plans to sell gift cards at 2,000 branches in May as part of a test to determine whether it can generate additional revenue.
The Postal Service contends that when consumers buy gift cards, they often also mail them to their intended recipients. And they buy stamps.
There is “a nexus between the use of gift cards for gifting purposes and the use of the mail for sending that gift,” the agency says in a notice filed with the Postal Regulatory Commission, which oversees the Postal Service.
Though some observers question whether the strategy will work. The postal service is targeting a growing market.
Needham, Mass.-based research firm TowerGroup projects that U.S. gift card spending will top $100 billion in 2012, up from an estimated $91 billion in 2010.
The Postal Service will begin selling network-branded, open-loop cards at the 2,000 branches where it also sells greeting cards, a product it added last year. It expects to expand the availability of gift cards to an additional 3,000 locations later this year. It has more than 27,000 locations altogether.
Since it began offering greeting cards, the Postal Service has received feedback from customers who say “wouldn’t it be great to also offer gift cards,” Christine Ray, the agency’s manager of the retail service network, said during an interview.
The agency sells greeting cards at branches primarily in “large markets,” Ray says. It chose those same locations for its rollout of gift cards “to see if we can see a similar … pattern of people buying gift cards and mailing them,” she says.
The annual revenue generated by gift card sales during the test, which is slated to last two calendar years, likely would not exceed $10 million in a single fiscal year, according to the Postal Service’s proposal.
The agency plans to contract with one or more third-party issuing banks, payment networks or program managers to administer the program. A contract has not been finalized, and Ray would not discuss the agency’s possible partners.
Initially, the postal service will sell cards in fixed amounts of $25 and $50 and cards with variable amounts ranging from $26 to $100. The cards will carry activation fees of $3.95 for a fixed $25 amount, $4.95 for a fixed $50 amount and $5.95 for a variable amount. The agency will retain a percentage of the fees.
The agency eventually may add closed-loop, or proprietary, merchant gift cards and “e-gift” or virtual gift cards, an emerging category that allows a consumer to send a gift card via e-mail. TowerGroup also expect virtual gift card spending to reach about $3 billion in 2012.
The Postal Service’s plan in theory makes sense, but the agency’s success largely will depend on where it chooses to sell the cards and how it markets the service, payments experts say.
“Gift cards have become kind of a commodity in that you can get them everywhere,” says Ben Jackson, a senior analyst in the prepaid advisory service at Mercator Advisory Group in Maynard, Mass. “The idea that … this is sort of a huge revenue mine, I don’t think holds a lot of promise for the post office or anyone else.”
A key challenge will be getting consumers to think of the post office when they want gift cards, which already are widely available at drug stores, supermarkets and other retailers, Jackson says.
Brian Riley, TowerGroup senior research director of bank cards, says offering gift cards in conjunction with greeting cards could help entice customers looking for a last-minute gift. However, the Postal Service will have to beef up its greeting card offerings to do that.
“If you’re looking at your typical CVS or Walgreen’s, they typically have two to three aisles of cards,” Riley says. “If their hope is to peg this on that convenience factor, they need a much more meaningful plan.”
Unless the agency offers closed-loop cards, ultimately it will miss a whole chunk of the market, Riley says.
