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Not Only for the Holidays: Using Gift Cards for Prepaid Services

By Michelle Graff

Electronic gift cards are versatile payment products, with uses far beyond the typical holiday or birthday gift. They are finding a niche in coffee shops for frequent sippers who use them as prepaid service cards. At many retailers, they are an easy way to issue a store credit for returned items. They also serve as great promotional and corporate incentive tools.

Following are examples of two businesses using gift cards to improve service and reduce fraud losses:

Talking Trash in Minnesota

Located in Northeastern Minnesota, St. Louis County has a regional landfill and five transfer stations to keep up with the refuse produced by citizens and businesses. While traditional curbside pickup serves the majority of residents, some consumers and businesses opt to haul their garbage to a collection site.

Contractors whose work involves a lot of demolition are regular customers. Special projects such as remodeling the home or cleaning out the garage often result in extra trips to the landfill.

Even garbage isn't free anymore. To maintain the solid waste disposal and transport system for the largest county west of the Mississippi, St. Louis' Solid Waste Department charges a fee for depositing trash into its landfill. That's where gift cards come in.

"We needed to make as many noncash payment options as possible available to our constituents, and prepaid service cards seemed a natural solution," said Jo Anne Newman with the County Auditors office. The Solid Waste Department worked with Newman's office to identify a cost effective and practical solution that would benefit both its constituents and the department.

"Landfill customers range from homeowners with extra refuse that the weekly garbage won't pick up, to local resort owners who bring their garbage in themselves, rather than hire a commercial hauler," Newman said.

"A fee is collected when the trash is brought in, with costs being assessed per 30-gallon trash bag or by weight for sizeable drop-offs. What we really needed was a cashless solution for those more frequent customers with larger loads to deposit."

St. Louis County turned to NOVA Information Systems for a better solution, and electronic gift cards fit. Customers simply fill up the card with cash, up to $100 per card. When they need to get rid of their waste, they have an easy, secure way to pay.

Prior to launching the prepaid card system, the county extended credit to many organizations. It faced a monthly invoicing and collection cycle that slowed cash flow and occupied a sizeable chunk of agency staff time.

"Now we just have those groups purchase prepaid cards," Newman said. "They have an easy way to pay for service, and we eliminate a huge bookkeeping task."

What's more, customers can refill cards with a simple phone call, charging the additional fees to a credit card.

The program is especially helpful for businesses that send a member of their staff with the drop off. "We don't take cash, and typically the delivery person isn't an approved signer on the business's corporate credit card," Newman said.

Now the boss can fill up the card back at the office with only a phone call and send out a staffer with the garbage and the gift card for payment.

The gift cards are convenient for customers; they also enable the county to streamline its accounting. "Besides eliminating our monthly invoicing of certain accounts, there's less paperwork to manage, and all our receipts, [including] credit, debit and EGC, show up on a single statement," Newman said.

Gift Cards Keep Profits From Slipping Away

A few years ago, Oil Changers, a 36-store auto-service chain in California, devised a way to keep customers coming back: issue prepaid coupon books, good for four oil changes each.

Customers could purchase the books at a discounted price and simply tear out one of the four enclosed coupons each time they brought in their vehicle for an oil change.

The concept seemed to offer a solid marketing program to promote customer loyalty and accelerate the firm's cash flow. But unforeseen circumstances drained the program's effectiveness, and profits began to slip away.

"We found that over time, many of the coupon books delivered to the stores were unaccounted for," said Dennis Blom, Oil Changers Accounting Manager. "We had no way to track and cross-reference which books were sold and when the corresponding coupons were redeemed.

"Unfortunately, it turned out we had some unscrupulous employees who were stealing the books and selling them on the street or giving them to friends. We were doing free oil changes without realizing it," he said.

Electronic gift cards served as the solution to this slippery problem. Oil Changers opted for a colorful custom card, loaded with credits for four oil changes, rather than a specific dollar amount.

"A customer purchases a card with four oil change credits, and each time they use a service, one of the credits is deducted from the card," Blom said.

Unlike the coupon books, the cards have no value until activated by a store employee, and NOVA tracks every card and its balance and activity. The chain has eliminated its problem with lost or unaccounted for coupon books. The new system also works as a theft deterrent.

With card inventory under control, Oil Changers can reap the benefits that prompted it to offer prepaid services in the first place.

"We set up the program to keep customers coming back to us for their oil changes," Blom said. "We also offer other parts and services for vehicles.

When the customers come in for their prepaid oil change, we've got the perfect opportunity to sell them additional services.

"We purposely chose four oil changes as the number offered through our gift cards, because that's usually about a year's worth of oil changes for our typical customer.

If we can keep the customer coming in to one of our shops for a year, we've got the opportunity to build up a service history on the vehicle that enables us to help them better manage the maintenance on their vehicle," he said.

The approach seems to be working. Oil Changers sells about 200 to 300 prepaid cards per week throughout its stores, and about 10% of its customers regularly use gift cards as a form of payment.

"It's all about building a relationship with the customer," Blom said. "We want them to rely on us for their vehicle service."

Prepaid solutions helped the two businesses described in this article better manage their finances, while providing convenient services and payment options to their customers.

Michelle Graff is Vice President of Marketing for NOVA Information Systems. E-mail her at .

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