Online exchanges help shoppers to be rid of unwanted gift cards
SAN JOSE, Calif. — So the good news is that Aunt Lula in Des Moines finally remembered your birthday. The bad news is that she sent you a gift card to TJ Maxx, and you'd rather eat bees than shop there.
What's a clothes horse to do• A burgeoning number of online card exchanges are making it possible to turn those unwanted cards into cash, cards from other retailers or even playing time on your favorite online games.
And because sellers of unused cards typically are forced to sell them at a discount, more and more people are buying from the exchange sites to cut costs.
Ruben Collazo, a software engineer in Tampa, Fla., has used websites such as GiftCardRescue and Plastic Jungle to score discount cards from retailers including Lowe's and Best Buy. "Over the last year, I've saved 9 percent overall," he said. "I can't get that kind of return in the stock market."
You can give or get cards for restaurants, movies, sporting goods, even Disneyland. "The total value of gift cards sold in 2010 was about $100 billion, and 10 percent of those go unused," said Kwame Kuadey, chief executive of GiftCardRescue, which is based near Baltimore.
"A lot of people don't know they can sell their gift cards for cash," Kuadey added.
That's slowly changing. New competitors are jumping into the market, and Kuadey says his site's revenues have quadrupled each of the past two years to $2 million.
Still, that's less than a quarter of the transactions handled on industry leader Plastic Jungle, which was started more than five years ago.
"There's now about $30 billion in unused gift cards out there," said Plastic Jungle CEO Bruce Bower. "There's a huge amount of value that's just gotten stuck in the economy."
Bower and Kuadey both said their companies buy gift cards for 80 to 85 percent of their face value and sell them for 85 to 90 percent of that value. The exchanges make money by pocketing the difference.
The CEO of a brand-new entrant in the market says that aspect of the card-exchange phenomenon is unfair. "It's very important to us that if you have a gift card for $20, you get $20 for it," said Marc Rochman, who launched Redwood City, Calif.-based Openbucks last week.
Rochman is a veteran of the card industry; he founded Card USA, which manufactures hundreds of millions of gift and prepaid mobile cards for retailers. "From the large chains like Starbucks down to the local bakery, almost everybody has a gift card program," he notes. And recently, online gaming companies like Zynga have been getting into the act.
Rochman's idea: Letting consumers use the same cards at a host of different retailers, online or off. Openbucks has forged agreements with a handful of major chains, including Subway and CVS Pharmacy, to allow their cards to be spent at game sites such as World Golf Tour and Parallel Kingdom.
Rochman said that not only gives consumers another way to use cards they've received as gifts but lets people who don't have access to credit cards — including teens — participate in online commerce. After a beta launch five months ago, Rochman says his site already has tens of thousands of users.
Of course, any fast-growing market draws its share of potential scammers. Kuadey and Bower say their companies provide safer alternatives to buying cards on outlets like Craigslist or eBay, because the exchanges offer money-back guarantees to users who might get stuck with a fraudulent card. Plastic Jungle even works with card retailers on the front end to verify cards sold on the site are valid.
Still, Bower allows, "There are instances where there's fraud in the system."
Bill Hardekopf, CEO of LowCards.com , warns shoppers to steer clear of sites that ask for a Social Security number or bank account.
"If they start asking you for personal information, that would be a red flag for me," said Hardekopf, whose Birmingham, Ala., company helps consumers research and choose among credit card offers.
Collazo, the Tampa shopper, adds that it's important to check a site's terms and conditions carefully, since shipping and return policies can vary and some sites won't replace cards lost in the mail.
But overall, "What I like about this industry is there are no undisclosed 'gotchas' anywhere," said Collazo. "There aren't any shipping costs or hidden fees; if you want a $100 card, you pay $80.
"It's a great way to save money."Additional Information:
Really, you shouldn't have...
Here are some of the leading online exchanges that let consumers swap or sell unwanted gift cards.
Cardpool : Founded in 2009, San Francisco startup is backed by Mitch Kapor, Ron Conway, Max Levchin, Chris Sacca and Paul Buchheit, among other top angel investors. http://www.cardpool.com .
CardWoo : With a debut last year, Florida company is a sister to controversial mail-in gold reseller Cash4Gold. http://www.cardwoo.com .
GiftCardRescue: Maryland firm launched in 2008 by MBA student has bootstrapped its own funding. http://www.giftcardrescue.com .
Plastic Jungle: Five-year-old San Jose company has landed more than $23 million in venture capital and says it's the largest such marketplace for gift cards. http://www.plasticjungle.com .