February 28, 2011

U.S. Postal Service to Test Market Gift Cards

On Jan 5, 2011, the USPS notified the federal postal regulators that it will begin test selling gift cards via USPS retail locations on May 2011 for a period of two calendar years. Initial plan is to test an “open loop” gift card, which can be utilized at most retailers and not just with USPS. An “open loop” gift card is similar to pre-paid bank gift cards. Most likely, USPS will partner with a bank or credit brand, such as American Express, Visa or Mastercard.

Initially, the gift cards will only be available at 2,000 retail locations and increase up to 3,000 additional locations by October 2011 to capture holiday sales. At launch, the cards will not be available via Automated Postal Centers (postal ATMs) or from USPS.com website. One of the benefit of selling the gift cards in postal retail location is the cross and up sell potential with other postal products, such as postage and greeting cards.

Revenue will be generated by charging an activation fee for the gift cards. All fees charged will be in compliance with CARD Act of 2009. Activation fees can potentially range from $2.95 to $7.95 with USPS retaining a negotiated percentage of the fee. USPS estimates annual revenue of less than $10 million.
Currently, the Postal Regulatory Commission is taking comments on the Postal Service’s plan to test market gift cards. Pitney Bowes and American Bankers Association have come out against the proposal, while Hallmark has come out in favor it. If the PRC allows the plan to move forward, a look north of the border can reveal what a postal gift card may look like. Canada Post offers a prepaid Visa card with activation fee ranging from $3.95 to $6.95 Canadian dollars.

Do you think it is a good idea of the US Postal Service to sell gift cards?

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