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Stored-Value Gift Cards: They Aren't Just for Breakfast Anymore!

It seems impossible to fathom that at one time we mostly drank just plain coffee for breakfast. There were no venti lattes or mocha Frappuccinos, nor were there half-caff Caff‚ Americanos with a dash of caramel, and we didn't spend three bucks at the counter for a cup of joe, either. Just good old fashioned "rot gut" coffee that, for the longest time, cost a dime. ("Brother, can you spare a dime - for a cup of coffee?")

Anyway, that was then and this is now. We are now the latte generation, originated and formulated by that famous Seattle institution known as Starbucks. Not only do we now have a veritable cornucopia of caffeinated creations, we no longer confine our consumption to the morning hours. At any given time of the day you will find a line at the counter ordering one adrenaline-jolting taste wonder or another, frapped, whipped, blended or just poured at our local Starbucks.

Yes, it is true. Starbucks was the one that started us all on our way to spending up to 40 times what we used to on a cup of coffee, but coffee is not what this article is about. You see, not only did Starbucks create an international phenomenon in the world of caffeinated beverages; it also got us hooked on stored-value gift cards.

Granted, Starbucks was not the first retailer to proffer and accept gift cards at the point-of-sale. As a matter of fact, 58% of the top 250 retailers now accept gift cards in one form or another. However, Starbucks did get us to embrace them with the fervor associated with the rest of its brand marketing.

Most of the buzz that we are experiencing with gift cards was initiated in late 2001 when Starbucks introduced them with a flourish. Now, many of you may not know why Starbucks decided to offer its gift card program. And, if you are like me, you will be surprised to find out why.

As I mentioned earlier, we never before considered paying three dollars, more or less, for a single cup of coffee. And not until someone introduced a cup of coffee that actually tasted good (go figure) did any of us think about using a credit card to pay for it.

However, as we began facing the daily three-dollar "mocha chocha ya ya grande latte with a twist," not to mention the two-dollar muffin, it became downright commonplace. That's right, we began financing our new habit with plastic, and Starbucks is paying for it in transaction fees and interchange from Visa and MasterCard.

As you can imagine (just do the math), even with the leverage associated with Starbucks' credit card volume, those fees could add up in a jiffy. So it is only natural to assume that some smart accountant challenged the product development department to investigate the "gift card thing." After all, if it could get its devoted customers to PREPAY for their jolt, then the benefit of future reduced interchange is obvious. For you and me, the rest, as they say, is history.

Because of this simple twist of genius, retailers have begun to look upon the phenomenon known as stored-value gift cards as a necessity and not just a benefit. Americans have embraced the gift card with a fervor unmatched by anything short of the credit card boom of the 1980s. As a matter of fact, according to First Data Merchant Services, which did a survey of the current gift card culture, the results are:

  • 75%-85% of U.S. consumers are aware of gift cards.
  • 45% have used one.
  • The average purchaser spends $200 per year.
  • The average purchaser buys four cards.
  • 61% of recipients spend more than the amount on the gift card.
So what does this tell us? First, since the Starbucks Gift Card Revolution, retailers are not just asking for gift cards, they are demanding the capability to generate and accept the gift card at the point-of-sale. It is no wonder - the gift card offers a host of benefits to the merchant as well as to the consumer, not to mention the extraordinary revenue opportunities that it brings to you and me.

Because of that ubiquitous chain of corner havens designed to create and satiate us java junkies, we now have a new craze on our hands. And it is up to us to give merchants what they are asking for.

Starbucks estimates that part of its 23% growth for the second quarter can be attributed to, among other things, its gift card program. You will find that Starbucks has other ideas for the gift card in the works. It is estimated that at any given time there is more than $1 million prepaid on its cards. That is a lot of latte not yet poured just sitting in the Bank o' Starbucks collecting interest. And according to a national average, the breakage is realistically sitting at about 15%. Hold the foam! In anyone's book, that is a lot of beans.

So the race is on, and I say to you: Go west, young men and women, and east and north and south, to your local retailers and sign them up. They are waiting for you to show them how they, too, can be like Howard (he was the one who bought Starbucks and changed the way we drink our coffee forever).

On your way out, be sure to pick up your grande vanilla latte. For if it was not for Howard's brilliant idea to get us to fork out big bucks to get our adrenaline fix, it would not have spawned the notoriety and overnight sensation of stored-value mag stripe gift cards nationwide.

Steve Eazell, a 15-year veteran of the payment industry, is the Director, National Sales and Marketing for San Diego-based Secure Payment Systems, Inc. (SPS), a national provider of value-added services, including electronic check and stored-value gift card services. For more about SPS, visit E-mail Steve at

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