Digging Deeper with CashStar: The Digital Gifting Phenom
Andrew Barnes’ series, “Digging Deeper” is based in Silicon Valley and focuses on startups and key innovators and how they are disrupting digital payments and commerce.
CashStar is a successful startup whose vision of branded currencies for retailers is disrupting the $120 billion traditional gift card market. CashStar generated more than $500 million in gross merchant sales, growing by 92 percent year-over-year in 2013. It was recently named to both the Forbes 100 most Promising Private Companies list and the Inc. 500 Fastest Growing Companies list. It’s fair to say these folks are doing something right.
Andrew sat down with Ben Kaplan, president and CEO, to discuss branded currencies for retailers, the business models they are disrupting, and the market inefficiencies on which they are growing their business.
Andrew Barnes: As a payment and commerce professional, why should I pay attention to what CashStar is doing? Why are digital gift solutions relevant to me?
Ben Kaplan: That’s a really good question. Let’s look at what digital gifting and digital gift cards actually are and what they mean.
When talking about digital gifting, what you are really talking about is mobile prepaid payments that are branded currencies for use at that particular retailer or merchant.
Users may refer to them as eGift cards, but that is simply the application of a well-understood product and payment type.
What we are talking about is a very different end-to-end experience for the merchant, the giver, and the recipient.
All are executed in digital form, and are redeemed via a smart phone in-store over 50% of the time. As a payment and commerce professional, the application and the use of mobile payments in a $120 billion market for traditional gift cards is pretty important.
Can you further explain the concept of a branded currency for a retailer?
Sure. If you take a look at the rise of retailer and merchant mobile applications for payments, these apps usually use a prepaid or stored value model.
It’s a form of prepaid, and you also think about digital gift cards, which are another model of prepaid stored value, right? In both of those cases, you’re talking about a closed loop currency that can only be used at that merchant.
It isn’t that you couldn’t call traditional plastic gift cards a branded currency because they technically are.
The difference is with digital gift cards and mobile prepaid solutions. Users have portability, accessibility and immediacy, as well as the ability for offers and these currencies to be promoted and used within digital marketing campaigns.
When these can be redeemed easily with a 2D barcode scanner on your smartphone, the power of digital gift cards as a branded currency is unleashed. And that branded currency can be used by retailers and by merchants, like Starbucks and The Home Depot, in a really interesting range of applications and use cases.
Almost any single consumer marketing initiative can be enhanced by or supported by a marketing campaign that leverages and utilizes a promotion featuring digital gift cards or branded currency.
For instance, marketing campaigns that drive new customer acquisition, re-engagement, new location openings, new product launches, in-season sales, off-season sales, or in-store sales versus online sales.
How does the distribution work, and what are your retailer and merchant clients telling you that they want?
In this case, obviously, we’re not talking about Andrew sending his nephew a digital gift card to Best Buy.
What we’re really talking about is perhaps Best Buy or Staples or Starbucks sending out digital gift cards to incentivize consumer behavior.
Those types of promotions that leverage this concept of a branded promotional currency is a really, really interesting set of applications for CashStar and one which our retailers and merchants are pulling us into.
The company wasn’t founded with this vision in mind.
The company was founded with the vision of resolving the incredible inefficiencies and costs in the plastic gift card supply chain. We said we were going to automate and streamline them into a digital, mobile form factor.
On top of that very strong business, we’re now defining and building the market opportunity for using digital gifting as a branded promotional currency, a currency that retailers and merchants can use in a range of consumer markets and applications.
So whose business model are you disrupting, if any?
I think that there are a few and I think they’re at a couple of different levels. In the near term, we’re disrupting the plastic gift card models currently dominated by players like Blackhawk Network and InComm.
I think more broadly, and more strategically, we are part of the mobile payments and mobile marketing disruption that is occurring in both payments and omni-channel retail.
You’ve mentioned mobile a couple of times, can you talk about what mobile means to your business and how you are innovating with it?
Everything. Yes, the short answer is that it means everything.
The longer answer is that the future of many different day-to-day consumer experiences will at a minimum be instantiated and supported by mobile or will be completely encapsulated in mobile.
Our own mindset from a development and strategy perspective has changed from mobile first to mobile always. Everything we do as a company, in some form or fashion accounts for, prioritizes, or enhances our mobile strategy.
It’s because the user experience that we will rely on and that we support will primarily be a mobile one. It doesn’t mean that we’re not supporting additional modalities, we are. We’ve very, very flexible.
Keep in mind that the market still has a long way to go from an adoption perspective. However, our business and our future are linked to the growth and adoption of interesting and exciting mobile use cases.
Let’s go back to distribution channels. How are you disrupting B2B distribution and partnerships pertaining to the digital gifting platform for retailers and merchants, and which is more important?
They’re both important, and they’re pretty different.
I’ll tackle each independently. CashStar originally started its business focusing on the merchant to consumer experience. For instance, how consumers could buy gift cards for friends, for each other, for themselves, and how those use cases can be instantiated in a digital and mobile experience.
The second wave was when CashStar began to invest and build out solutions for helping merchants distribute gift cards directly to other businesses, to other channel partners, to loyalty programs, to airlines, and to gift card distribution houses.
That market, the traditional B2B gift card market, is very dynamic and it’s one that CashStar has made a great amount of progress in this past year.
So let’s tease this out. There are a lot of players between the retailer and the end employee in an incentive program or a member of a loyalty program. You might have the credit card company and then the loyalty platform and then several gift card distributors. You’ve got lots of different players between the retailer and these really interesting B2B gift card distribution channels.
Many things that we’re trying to do in gift card distribution are to rationalize, integrate and simplify all of these different channels and relationships for the retailer. That goal is a big one, and we’re making tremendous progress on it.
There’s just so many different, discreet players, companies, resellers, distributors, between the retailer and the end consumer in this B-to-B-to-B-to-B-to-B-to-B-to-C distribution model. CashStar’s goal is to try to simplify that, and by doing so adding a lot of value to the merchant.
As you look at 2014, what big deliverables are you committing to?
I think that there are three things, three big areas. First is a continued rollout of innovative solutions for digital gifting and branded currencies that advance retailer and consumer goals in really compelling ways.
The second piece is that I expect us to have incredible growth this year. Just like 2013, I know we’re going to blow the doors off from a revenue perspective, an adoption perspective, and a new client perspective.
The third piece involves scaling the company. Scaling companies is hard and we’re at the stage where we’ve got to bring in different processes and additional people. We’ve got to be able to hire and on-board new employees, new executives, and get efficient people.
We’ve got to make sure that we’re able to do that and execute on our business in a really repeatable way even as we are innovating the entire time.
CashStar is the leading provider of omni-channel digital gifting solutions for the world’s top brands. The CashStar platform enables retailers and restaurants to maximize sales, eliminate fraud risk, increase customer engagement, and drive adoption of mobile payments. More than 300 leading companies rely on CashStar to power the most innovative and advanced prepaid and digital gifting programs, including Best Buy, Brookstone, Coach, Crate & Barrel, Dell, Dunkin’ Donuts, Gap, lululemon athletica, Office Depot, Petco, Pottery Barn, QVC, Sephora, Staples, Starbucks, The Cheesecake Factory, The Home Depot, and Williams-Sonoma.
Ben Kaplan, president and CEO
Ben brings twenty years of experience to CashStar in senior operations, marketing, and product roles at software, e-commerce, loyalty marketing and payments companies. Most recently, he was Chief Operating Officer at Cartera Commerce, a leading provider of card-linked marketing solutions for merchants, banks, and loyalty programs. Prior to Cartera, Ben was Vice President of Marketing for KNOVA Software and Vice President of Marketing for North Systems, directing marketing and product management at both companies. Earlier in his career, he held product marketing and product management positions at Broadbase and Commerce One. Ben is a graduate of Harvard College.
Barnes is a self-confessed payments and commerce “geek” working in Silicon Valley and San Francisco. Leveraging his entrepreneurial background he utilizes relationships in tech, startups, retail, and financial institutions to identify emerging opportunities and analyze challenging business models in digital payments and mobile commerce. He has held executive business development positions in Asia with Sprint, Global One, and 2Roam Mobile. He founded and sold the National NNN Investment Group and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from Waseda早稲田大学大学院 in Tokyo and a BA from Penn State. He can be reached at @AndrewinSV and Linkedin.