Blackhawk Network On the Move
In the prepaid business, distribution has long been king. Blackhawk Network, the prepaid distribution provider and technology platform best known for its strong presence in retailer-based gift card malls, has created a lot of buzz in recent months. Since its IPO in April 2013, Blackhawk has executed a series of strategic moves designed to expand both its product suite and distribution channels with a strong focus on the digital arena:
- A strategic alliance with e-commerce and m-commerce giant PayPal
- The acquisition of prepaid B2B and incentives solution provider InteliSpend
- Piloting a prepaid program for open-loop GPR cards with partner T-Mobile
- A partnership with Coinstar for digital gift card fulfillment
Strategically, it appears that the company will look to drive gift card partners into the digital and mobile spaces in both the direct-to consumer and business-to-business channels. While First Annapolis believes plastic cards will continue to retain a strong appeal in gifting, the prepaid industry is evolving as the legacy product makes headway into several familiar payments arenas:
- Banking Alternatives such as open-loop GPR and Payroll
- Loyalty platforms such as the Starbucks Card (or should we say, Starbucks app)
- Incentive and B2B solutions
- New closed-loop card use cases (group-gifting, event registry, budgeting, RAN cards)
- And, mobile payments
We offer a quick perspective on Blackhawk’s recent moves:
Through an alliance with PayPal, Blackhawk provides its card partners with an entry point into the PayPal mobile wallet app. It is expected that consumers will be able to purchase and give gift cards via the mobile device or e-commerce engine, and also input and store gift cards within the wallet for use. For PayPal, the solution is yet another step in the direction of full mobile wallet, as the firm’s recent partnership with Alliance Data suggests a similar application for retailer-branded private-label credit cards.
The partnership is a clear bet on gift cards in the mobile environment, both as a digital acquisition point as well as the form factor for transacting. With 137 million total accounts worldwide and a digitally-inclined customer base, PayPal is a logical partner. Blackhawk will also work with PayPal to enable its distribution partners to be able to sell PayPal open-loop prepaid products and enable PayPal loads using Blackhawk’s ReloadIt prepaid reload network.
Through InteliSpend, Blackhawk enhances its B2B offering in a meaningful way. The B2B business is complex, where incentive houses, scrip companies, loyalty providers, financial institutions and a variety of specialists compete for corporate sales. Gift cards have become an important redemption option for the incentives business, with an emphasis on open-loop gift cards which have wide consumer appeal. Serving the B2B market requires significant sales coverage and unique fulfillment capabilities, both of which InteliSpend bring to the table. The combination of the two entities could potentially bring Blackhawk’s 100+ card partner relationships, for both plastic and digital or e-gift cards, and the firm’s proprietary open-loop prepaid products to InteliSpend’s 1,000+ corporate relationships.
T-Mobile Prepaid GPR
Wireless carriers such as T-Mobile are sought-after channels for financial services providers because of their massive reach (T-Mobile has 45 million wireless subscribers and 70,000 direct and indirect distribution points), sticky customer relationships (churn in the cell-phone industry varies by provider but is typically <5-10% annually), and obvious fit with mobile technology. By winning the program management business for T-Mobile, Blackhawk throws its hat into the ring with the likes of Green Dot, Netspend (TSYS), Xerox, and several financial institutions and others for end-to-end third-party prepaid providers.
Consumer adoption will ultimately be a function of the product’s value proposition, pricing, load capabilities, T-Mobile’s channel integration, and Blackhawk’s ability to execute, but if the program reaches national roll-out, even capturing a fraction of 1% of T-Mobile’s 45 million subscriber base will drive meaningful scale and card volume to the partnership. We should note that the initial pilot program will likely occur in a small subset of T-Mobile channels with the opportunity for expansion if successful.
In Coinstar, Blackhawk finds a strong and unique distribution partner, allowing consumers to exchange coins for retail gift cards at Coinstar machines. Coinstar, which processes over $3B worth of coins annually, estimates that 90% of American households live within 5 miles of a Coinstar machine. While exchanging coins for gift cards at a Coinstar machine isn’t new, First Annapolis expects that the Blackhawk-Coinstar partnership will drive digital gift card sales for Blackhawk for reasons including: (1) customers will prefer a digital gift card for self-use because of the immediacy of retail gift cards that can be delivered electronically and (2) the underlying economics and operational benefits surrounding the digital gift card transaction can expand the number of card options available and offset real costs to consumers (for consumers to get cash from Coinstar, they pay a % transaction fee).
Sources: Blackhawk Investor Relations, Quarterly Earnings Presentations, Company Websites, Company Press Releases, Google Finance, First Annapolis Consulting Analysis.
For more information, please contact Aaron Mercurio, Senior Consultant, specializing in Credit Card Issuing, firstname.lastname@example.org.
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