not sure where to start? click here.

Innovators in the News

1/4/12 - Portland Gift Card Company Rides Digital Wave

by Josie Huang, Maine Public Radio

"Last year at Christmas Eve was our busiest day, but Christmas Day is also one of our top days of the year--and even the 26th. It's the kind of the guilt, 'Omigod, I forgot to send the gift!'" says David Stone (left), president and co-founder of CashStar.

His two-floor office building downtown is buzzing with dozens of engineers, designers and customer service representatives, keeping up with increased sales volume. This month, work shifts go 24-7. "We run the whole thing--take the payment, issue the card, answer the phone, e-gift-card customer service. Completely running it, it outsources to us," Stone says.

Gift cards are the most popular holiday present, hands-down. The National Retail Federation says that the average shopper will dole out $155 on gift cards this season. Traditional plastic cards dominate the market. But CashStar is among the e-gift card companies trying to grab a bigger piece of the pie.

"We don't even call them cards anymore, we call them e-gifts, because it's a gift," Stone says. "You know, we've taken the 'card' out because there's no more plastic, right?"

Stone, a business consultant and former American Express executive, founded CashStar in 2008, seizing on a way to merge the popularity of gift cards with the rise of mobile technology.

"You go into a party and you see people walking in with gifts and you haven't done anything: You can actually buy it on your phone and have it arrive," Stone says. "You can give someone a virtual bottle of wine and they can go to the website and have it shipped."

You can also so send e-gift cards by posting on the recipient's Facebook page, creating publicity for the retailer. Retailers that sell e-gift cards also acquire something else very valuable: the e-mail addresses of the recipients.

"When I buy a plastic card off the rack in the store, it's an anonymous sale--they can't talk to you, they can't tell anything about you," Stone says. "So this gives the retailer advantage to offer you other programs, build loyalty."

Stone won't say how much CashStar is making. But in the last several years, the company has raised $28 million from investors, and analysts say it's become an industry leader representing top-shelf brands.

But where Stone thinks that e-gift cards will soon overtake plastic, one analyst says the industry has a long way to go. "We predicted that there would be--November, December--about $38 billion in gift cards sold, and of that about $200 million will be placed on electronic cards," says Tim Sloan, who researches the pre-paid card industry for the Boston-based Mercator Advisory Group.

Sloan says the industry has to ovecome some logistical hurdles with e-gift cards. "You receive it by e-mail, you typically then print that out, carry that into the store, they then tell you, 'Oh, this is how much money we've consumed,' and they hand you a receipt with a balance. So now you're sitting there and you've gone from this nice, clean electronic number to a pile of paper that's in your hand."

Sloan says that e-gift card providers have to also contend with potential fraud. Tim Brewer, vice president of engineering, agrees it's an issue, and during the higher-sale volume of the holidays his staff is keeping an extra vigiliant eye out for suspicious activity.

"It could be fraudulent credit cards that are used for it," Brewer says. "It could be fraudulent URL's, meaning that the e-mail addresses are bad and they're taking advantage of getting an e-gift code sent to them that they didn't actually pay for."

Brewer, who used to manage the Information Technology departments at Idexx and L.L.Bean, says he's just as busy making sure that the company's servers aren't overloaded during the holidays. "Everybody decides at five o'clock in the afternoon, or some specific time, to all go online and all order a gift card simultaneously, so it's anticipating when they will do that."

Brewer says at peak use, the company will pay to use the servers provided by companies such as Amazon. In that sense, e-gift cards seem like different animals from plastic cards.

But consumer advocates say both types of cards require shoppers to use the same type of smarts. Will Lund is Maine's superintendent of consumer credit protection. "If you're giving gift cards, whether they're digital or plastic, make sure you read the fine print and understand what you're giving," Lund says. "That way if there are conditions or limitaitons, then you can tell the recipient about those."

Lund also urges recipients to use the gift cards right away. "A surprising number of cards don't get used any given year and people throw them away by accident or they lose the e-mail, or a store gets purchased or sold," he says.

David Stone responds to those concerns by saying his company will send periodic reminders to people if they haven't activated their e-gift cards. His goal is to be the best company in his industry, and beyond.

"Part of my passion and vision has been to kind of create the next big company in Maine," he says. "We have some great companies here, as you know--L.L. Bean and Wright Express, and a couple of others. But there hasn't been sort of another big successful cutting-edge comapny in a long time, and so that's what we're trying to do."

Stone says the company is on its way, noting that they've had several seven-figure dollar days in sales this year.

Previous Post | Next Post

MTI News

rss feed

MTI Blog

rss feed