The Not-So-Secret-Anymore World of the Secondary Market

 In Gift Card News

Too risky. Not profitable enough. Time-consuming and confusing. Doesn’t meet the integrity of our brand standards. Inconsistent.

If you are a merchant in the B2B gift card space, chances high you’ve had one of these thoughts while approaching Secondary Market opportunities. Maybe you’ve had several. The Secondary Market is a unique trend that is undoubtedly growing in the gift card world, despite seeming like an extremely unconventional underdog. While its popularity is rising in the consumer market, this new channel has leaked into the B2B world – and has been met with mixed responses.

Despite spikes in sales, skeptics of the Secondary Market have merit, and are not just sales-shaming cynics. The space is so new and because of this there are many variations per program, making it difficult for merchants to trust that their brands are represented in a consistent manner. A recent article from Payments JournalTM, entitled, “Tips for Having a Positive, Safe Experience With Gift Card Exchanges,” brought these concerns to light, advising potential collaborators to do the research before jumping on the gift card exchange bandwagon. We wanted to take this a step further and asked our clients which concerns in the article they felt were valid, and which come while dealing with the unknown.

The “Black Market” of Gift Cards = an opportunity for redemption

First, we need to understand what the Secondary Market is. And although there are a few small programs that attempted to bring gift card exchanges to the forefront, the most notable of these was one of the most colossal retailers today: Target. In 2015, Target launched their gift card exchange program in nearly 1,600 of their brick and mortar stores nationwide. Their partner, Cardpool, runs an online version of the same concept, and is stocked with many brands within the market. Other brick and mortar stores followed suit, including GameStop, as well as many other online versions, including popular sites CardCash and Raise.

We contacted several well-known gift card exchange programs, and a few programs that were not very well-known, not only to ask them about the questions posed in the above article, but to help educate us on their business model. As briefly mentioned above, there are several different types of Secondary Market programs out there. Here are a few of the types that we’ve encountered:

  • Online Gift Card Exchange Programs – a consumer visits a website with an unwanted card and trades it for a card within the website’s inventory that they do want
  • In-Store Gift Card Exchange Programs – a consumer visits a brick and mortar location with an unwanted card and trades it for a card from that store
  • Gift Card Exchange Cash-Back/Credit Programs – a consumer sells their unwanted gift card to a party in exchange for a percentage of the card’s value in cash, or is given a monetary credit, to then purchase a card they want from their stock

As part of our Approvals team, I’ve become fairly familiar with the terms and conditions on the back of a gift card. Most use the phrase, “This card cannot be exchanged for cash…” or some variation of this. So how is it that this market has found a loophole around this? What we learned from talking to our Secondary Market contacts is that the truly legitimate programs are not out to cheat anyone. While it may be viewed as a “black market” to make a profit off of unwanted gift cards, these programs see it as a new way for gift cards to ultimately get redeemed by the consumer – they just found a way to make a profit from it. No brand wants a gift card to sit dormant and unused, and these programs are getting the right consumers to the right product. In their eyes, there’s no exchange of funds, as much as there is a new opportunity for redemption. One of the tips listed in the article sums this point up efficiently: “Don’t buy and sell gift cards to/from unknown individuals.”  To have the best experience possible, work with people that you trust. Find program directors who have reputable standings in the gift card business. In fact, all but one of the programs that we spoke to were connected with names and companies that SBGC comes across at least once a week. It’s safe to say, this tip was the most important, and our contacts not only agreed, but were eager to show their credibility and staggering sales numbers proving legitimacy.

Inside Insight

We connected briefly with Martha Weaver, Director of Merchant Relations at Raise.com, to discuss her pull to this market. Martha recently left her position at the Gift Card Network to join the Raise team and take them to the next level. After working with teams that dedicate themselves to informing and improving the gift card space for all, there are few who know the space better. Some may see this as a risk, but Martha saw this as an opportunity to be a part of something new and exciting. When asked about her experience in working with Raise, Martha talked about the important work ahead with creating new revenue channels in a way that works for all players.

“In my previous role, as Director of the Gift Card Network, I was in a unique position.  I was able to hear, directly from the Merchant Community, about their desire to find new channels to grow their gift card programs. And, at the same time, I worked with vendors and distributors to learn about their products and the challenges they had with Merchant adoption.  I was impressed by what I learned from the team at Raise, specifically how they had identified the primary concerns Merchants had with the secondary marketplace and had made it their mission to identify & eradicate fraud, uphold brand standards and help Merchants engage with new consumers.  I joined Raise because I am committed to this industry and want to help build this exciting new channel the right way, for all parties involved.”

Martha also points out that Raise positions itself as a, “…new type of digital payment in the B2B and B2C space and continues to focus on innovation around the future of retail currency.” It’s certainly thought provoking, with Raise leading the way in breaking down the stereotypes around exchange programs. At this time, Raise is partnered with over 60 of the 250 largest retailers in the nation, proving their popularity.

 Fraud Policies Exist

Fraud is the thing that no one talks about, while being the thing that everyone’s thinking about. It is apparent that the biggest fear behind this new market is that the consumers will be subjected to an ultimately bad experience, or even worse, they’ll have been duped. No brand wants to subject themselves to risk of loss or risk of loss of a repeat consumer. What we can tell you is that these programs hear you loud and clear, and the reputable programs work every day to ensure a positive experience for all. Of all the market contacts we spoke to, each had their own policy on how to deal with legitimacy of card balance, expiration dates or associated fees, and payout terms and conditions. For instance, Raise has a 100 day money back guarantee on all purchases while smaller companies like SaveYa have only a 90 day money back guarantee but boast an “industry low fraud rate.”

Taking Control of Unclaimed Territory

Just like in high school, one bad rumor can damage a reputation. Unfortunately for gift card exchanges, this isn’t high school; you can’t escape a bad reputation after you’ve graduated. And in this case, a bad rep will ultimately lead you to decline in sales, instead of grow with the market. But what we do know is that this market isn’t going anywhere. It exists. This is a non-traditional source of revenue for B2B, however, it is still a revenue source. These programs can’t demand that people exchange or sell their gift cards. They need bulk orders to fill the demands and vary their offerings. There are two schools of thought when you look at it in this way. You can either let the market go stagnant by choosing to not get involved with these programs, which will not affect your B2B business in any way. Or, you can connect with these programs, build a trusting relationship, and both share a piece of the pie.

What the article above failed to show is that all of these programs are more than willing to work with any merchants that are interested, but not yet convinced. They recognize you are the gift card expert for your brand. By working with these programs, you’ll not only be guaranteeing a better experience for the end consumer, but you’ll be launched smack dab into the middle of a consumerism study. You’ll get to see first-hand which brands are in popular demand in real time, and which are frequent exchanges. This is data that many B2B programs don’t have access to as most opportunities are closed once the initial bulk gift card sale is made. Suddenly you’re in control of this new market – it needs direction, and with the help of a trusted brand, business can skyrocket.

Now what?

                The world of gift cards is an ever changing planet. As the famous Heidi Klum repeatedly said on Project Runway, “One day you are in, the next day you are out.” The same is true for gift card markets, only they don’t get the luxury of a sweetly whispered “auf wiedersen” as technology races past them. It might just be time to open our minds to new revenue sources so that the B2B market continues to grow.

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