CashStar eyes the future of money
Photo/Darren Fishell
Mark Bonchek, founder of the digital business strategy consulting firm Orbit and presenter at CashStar's annual conference on retail trends last week, says retailers using "branded currency" will be the next big shift in digital and mobile payments.
The smartphone has a voracious appetite, set on performing the functions of everything from the flashlight to the handheld gaming console. For its next trick, it will become a wallet, too.
That’s where Gene Cornfield, vice president of marketing for the Portland-based e-gifting firm CashStar, is urging major retailers to turn their attention.
He’s one of the industry trend watchers prognosticating a shift that will come from the convergence of electronic gift cards — CashStar’s wheelhouse — with digital loyalty programs and coupon promotions. He calls what will likely emerge “branded currency,” and its adoption holds potential for his company.
“We're trying to assign a name to (this trend) so folks across the industry, whether in retail or coupons or loyalty cards, have a common language,” Cornfield said. “We hope to get the industry talking about it and working together to accelerate the implementation.”
The changing world of digital payments was the focus of the company’s third annual conference on retail trends last week.
For CashStar, which provides e-gifting services for national brands like Starbucks, The Home Depot and QVC, Cornfield says increasing digital retail transactions across the board — including areas outside of CashStar’s interest, like loyalty programs and coupons — stands to increase the company’s piece of the pie.
“We think that, as distinct branded currencies are able to converge into a single branded currency, (gift cards, loyalty programs and coupons) will grow and we think that, in economic terms, the increased liquidity and convertibility will always increase growth,” he said.
On the mobile side, the company is already seeing strong increases in business.
CashStar had an 800% increase in phone-generated digital gift cards from 2011 to 2012, according to Stores Media. The company also recorded increased use of “mobile wallet” applications like Apple’s Passbook.
Apple and others -- like Google and wireless service provider Verizon -- are also looking to gain traction in the arena of digital payment methods, but exactly how remains unclear. And CashStar’s co-founder and former CEO, David Stone, is also eyeing a move into that arena through a company called Payments207, which he said is still in a conceptual stage.
Steve Arthur, Google’s retail sector leader, said during the conference that his company continues internal discussions of its mobile wallet platforms but remains “super-secretive” at this point. In June, according to Apple Insider, Apple submitted a patent for a virtual currency system managed with a mobile device.
While the country’s tech giants are eyeing their own mobile payment platforms, Cornfield said that he sees CashStar’s place in the market as distinct, continuing to target retailer-specific services that are most often behind-the-scenes.
“Our model is very different,” Cornfield said. “We're suggesting that while third-party mobile wallets emerge, retailers’ opportunity is to create their own mobile wallet.”
For instance, Cornfield said a customer at Starbucks could use the coffee retailer’s proprietary application to buy a gift card and keep all the transactions in house. But retailers relying on third-party services, such as Apple's Passbook, would have to have a customer use an outside application for transactions.
For large retailers, Cornfield predicted the changes will come next year. In 2015 and 2016, he predicts, branded currency will start to take off among larger retailers. For smaller retailers, Cornfield said the transition is something that will likely be farther off, awaiting further adoption and debugging by companies with the money to support being first adopters.
To put the predicted shift to brand-specific digital currency in perspective, Mark Bonchek, co-author with Cornfield of a Harvard Business Review blog on the topic and founder of the digital strategy consultancy Orbit, said it’s a twist on the late nineteenth-century American economy, where around 4% of the money supply was government-issued and around 1,600 private banks printed their own dollars.
“There’s a lot of talk recently about brands as publishers, but now we’re thinking about brands as central bankers,” Bonchek said. “It's a big idea, but it’s probably where things are going.”
That’s because the increasing shift of gift cards, loyalty programs and coupons to digital formats accessible by phone make them more immediate, available and convertible.
That change paves the way for those now-distinct methods of storing purchasing power to come together in one digital store of value, or digital currency. And in the e-commerce world, those three areas of gift cards, loyalty programs and coupons are substantial.
Bonchek said estimates put the combined purchasing power of gift cards, loyalty points and product coupons at around $165 billion, a number nearly equaling the estimates for overall e-commerce spending.
“Those may not be the sexy side of retail but it's carrying a lot of the load,” Bonchek said.
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