How Are You Handling Gift Cards?
Recently I have had a couple conversations about gift card programs with potential clients. These are primarily people that do not currently have a POS system. What is interesting is how often customers are confused by their options when looking at electronic gift card programs.
Usually during these conversations we focus a lot on how stores are currently handling their gift and reward program and how they got there. Since we have a free gift and reward program we don’t have to worry about costs – just the functionality portion of this.
Usually a store does not have a POS system and is looking at adding the ability to sell and redeem electronic gift and reward cards. Around this time, the credit card processor gets involved and will explain all the benefits of a gift and reward card system. That processor will then either supply a terminal or possibly use or upgrade an existing one for the store. Some cards will be sold and then the store is off and running with a gift card system.
Sounds simple right? The problem lies in the costs and, sometimes, in the implementation when using a credit card processor or 3rd party solution for this situation.
This is almost always incredibly expensive to the store owner and usually not the best way to go. Here at SelbySoft we work hard to make sure store owners understand what kind of fees and troubles they may experience if they are not asking the right questions when talking about gift and reward programs.
There are a couple of questions that you absolutely must ask when looking at any 3rd party gift card solution.
What are the monthly fees? Most programs will add anywhere from $0 to $40 a month per location to process the gift cards.
Are there swipe fees? A swipe fee of $.10 to $.25 a swipe is pretty common with 3rd parties. Additionally most stores are not aware of what constitutes a swipe. With some of the systems out there there is a swipe for checking the balance, loading a card or using a card.
How much are the cards and are can they be custom? Cards are over $1.00 a card for a partially custom card with some processors. Others won’t do a custom card at all.
Is there a contract for processing gift cards? This is a big question. Credit Card processors will sometimes leverage the gift card information and contract to keep you from swapping credit card processing. Always make sure you know what you are getting into with the contract.
What happens if you decide to switch gift card processing? In some ways this is a bigger question than all the others. Make 100% certain that you retain rights to the gift card numbers and the balances.
This last question deserves some more explanation. Let’s say a store has implemented a gift card program through their credit card processor. Now, a year or two pass and the store has sold about 2,000 cards in total. The store now adds a POS or even just wants to switch credit card processors. What happens next is very important.
If this store is locked into a contract with the 3rd party gift card provider they may be stuck. The provider may tell this store that they have to fulfill the rest of the contract or even pay a cancellation fee to get access ot the gift card information. If the provider does not allow access to the numbers and gift card balances, then the gift card data may be useless to other companies. That means that customers have to be re-assigned cards or crew members have to look at a paper list to see what the value is.
There are plenty of examples of this happening in our experience. A few years ago we had a chain of stores that had over $40,000 in gift card balances at any given time between the locations. When they added SP-1 as the POS provider, the credit card processor would not release the gift card numbers or balances because of the contract that had been signed. They pushed the customer to either pay a whopping fee of $2,000 to get out of the contract or to continue to pay the combined fees of almost $200 a month until the end of the contract. Six months went by before the store could swap over the gift card processing.
I know this may sound a little negative but it’s important to ask these questions before implementing a 3rd party gift and reward program. Not all 3rd party, credit card or POS companies operate this way. Some, like Mercury Payment Systems, operate on a month by month contract and handle the gift card system free of charge as a value added solution.
Of course the best way is to buy the POS and implement the free gift card solution – sorry couldn’t resist!!
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