Pre-paid gift cards seem like such a good idea, but they've turned into such a headache. Can a Canadian company that's quickly captured the attention of global retail giants offer a fix?
Gift cards are certainly convenient for befuddled holiday shoppers – "Here! Pick your gift yourself!" – but they've proven to be something of a mixed blessing. After their rise to prominence through the early 2000s, about 20 per cent of American gift-card recipients never get around to using them. In those cases, the giver is out the money, the receiver doesn't actually receive anything except a vague sense of guilt, and the vendor – well, we'll come to the vendor in a moment. But it's not as rosy as it seems for them, either.
Leif Baradoy, a Victoria-based entrepreneur, has launched a service that he says offers a fix for gifters and retailers alike. The service, Kiind.me (that's pronounced "kind"), lets gift-givers purchase digital gift cards from retail giants like Apple, Nike and others. The twist is that, whenever the cards are purchased, they only get paid for at the moment that the recipient decides to cash them in.
"We defer the payment until someone activates them and uses them," says Baradoy.
For instance, if you were to use Kiind to give your daughter a gift card to, say Cineplex theatres, the money wouldn't come off your credit card until the moment she presents the card's activation code on her phone to the clerk at the theatre. At that moment, the money comes off your credit card, and goes through Kiind to the theatre company. In effect, Kiind waits until the very last minute to purchase a gift card, and uses it immediately, eliminating the purgatorial period where the cash is trapped in gift-card form, for both the giver and the vendor.
In concept, this benefits the gift-giver by ensuring that no money is spent on gifts that aren't used. (There are consumer perks as well: For instance, a giver can give the recipient a choice of gift cards – $25 at Swiss Chalet or Milestones: Take your pick, you lucky child.) But merchants have an incentive to play ball with Kiind, too.
Conventional wisdom has it that unused gift cards are a windfall for merchants. After all, they've already been paid, whether or not the card ever gets redeemed.
But "breakage" – the term for unused gift card balances – can be a real pain for vendors. For one thing, they complicate tax matters, and unused gift card revenues can end up getting taxed at very high rates. What's more, consumer protection laws being enacted across Canada are making it illegal for gift cards to have expiry dates. This means that vendors of prepaid gift cards can have breakage haunting their books indefinitely.
"It doesn't mean 100 per cent in the pocket of the retailer," says Baradoy. "It could mean a five-year accounting headache, and 50 per cent going to the government's pocket."
This is the state of affairs that made Kiind a startup worth doing business with for giants like Amazon, Apple and Nike, all of whom have let Kiind integrate with their sales systems. But Kiind has a bigger goal: While on one hand it's working with existing big-name retailers who already sell gift cards, it's also rolling out a full cloud service that offers a soup-to-nuts gift-card solution to companies large and small that don't currently offer them.
A former professional triathlete, and an operations manager at digital gifting startup, Baradoy says Kiind arrival on the market at the right time is what's attracted the heavyweights' attention.
"We have a unique innovation that's getting ahead of the consumer protection laws," he says. "We think we're on to something."