There's already a company with almost this exact business model....Very shady territory with GiftZip
Tucked away for the past year in an office at The Castle at Brickhill in South Portland, David Stone and his team of software engineers have quietly developed a platform that he says will revolutionize the $100 billion retail gift card industry. And now he says it's ready. Yesterday, Stone's company, CashStar, emerged from stealth mode armed with $4 million in private equity financing.
CashStar provides the platform for retailers to offer interactive online gift cards, which Stone says is the future of the gift card industry. More than half of all U.S. adults have purchased a gift card in the past six months, according to CashStar's market research. The vast majority of those are the plastic, use-once-and-toss gift cards you can buy at the check-out line. Of the $97 billion business, online purchases of gift cards account for only 6% of total sales, according to CashStar. Stone, an experienced executive in the payment processing industry, including 14 years at American Express, says online gift cards are expected to grow to 30% of the business within three to five years, and that his company is in a perfect position to capture that new market. "We believe we have the tiger by the tail," he says.
Here's how it works. CashStar has created a platform that allows companies to offer interactive gift cards on its website. A consumer will be able to go to a company's website, buy a gift card for whatever amount they choose, write a personalized message and email it to a friend, business associate or relative. The recipient can then use it immediately if the retailer has an online store, print it out and use it at a brick-and-mortar location or save it for later. That's the basic offering. The next layer allows retailers to embed incentives, special promotions and rebates into the gift cards. "Everybody sees this as the next evolution of the gift card," Stone says.
CashStar hasn't been idle for the past year. It already has worked with several companies to introduce interactive gift cards, including Uno Chicago Grill and Travelocity Incentives. Uno Chicago Grill offered online gift cards via CashStar's platform during last year's holiday season. The program increased Uno's online sales by 131%, Stone says. CashStar also has one local client, Gorham Bike & Ski, which embedded incentives in its online gift cards as a way to attract consumers to its new retail store on Portland's Congress Street. The company has also lined up $4 million in private equity financing from a San Francisco firm that prefers to remain anonymous.
Stone says online interactive gift cards are more convenient for consumers and more cost effective for businesses, which will no longer need to buy the costly plastic cards. Not only that, but online gift cards are more environmentally friendly. Stone says 80% of the plastic gift cards get used once and are tossed into landfills. "We just think it's overkill for a one-time payment," he says, adding that online gift cards are virtual or printed on paper that can be recycled. "We think our solution's is at the right place at the right team."
CashStar currently employs eight people at its South Portland office, but Stone says the plan is to have 18 by the end of the year. And if his projections are correct, Stone believes CashStar could be a couple hundred million dollar business in three to five years time, and a major employer in the greater Portland area. "That's our goal," he says. "The state has this cluster of talented payment people" -- as an example, Stone cites employees of the credit-card-company-formerly-known-as-MBNA, Wright Express and PowerPay -- "and we want to create a home for them."
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