The Postal Service has given notice to the Postal Regulatory Commission it intends to conduct a test of an experimental product: Gift Cards. This product will provide postal customers with the ability to purchase a card loaded with a specified sum of money, which can be sent as a gift through the mail. The test will begin on or after May 1, 2011
According to the notice:
Gift cards have become highly popular gifts in recent years. There is also a nexus between the use of gift cards for gifting purposes and the use of the mails for sending that gift. This provides an opportunity for the Postal Service to increase customer convenience, while enhancing revenue and encouraging the use of the mail for gifting purposes, by selling gift cards at Postal Service retail locations. The Postal Service will conduct a test to gain experience with the product, in order to better understand its costs and the value of the product to
postal patrons, in advance of determining whether it should be placed on the competitive product list under 39 U.S.C. 3642.
Initially, the Postal Service will test the sale of “open loop” cards, which are not specific to a particular merchant, but are branded by a Retail Electronic Payments Network (e.g., American Express, Discover, MasterCard or Visa) and can be used by the gift card recipient at any merchant that accepts cards administered by that Network. The Postal Service will enter into an agreement with one (or more) Issuing Bank, Retail Electronic Payments Network, or Service Provider to offer the product. The cards sold will either be the standard cards
offered by the supplier(s), or customized, co-branded cards, featuring Postal Service imagery (such as stamp art or the Postal Service corporate signature). The supplier will provide all customer support for cardholders after the cards are purchased, with the Postal Service operating solely as a sales channel. The Postal Service may also test the sale of closed loop cards (i.e., cards that are specific to a particular merchant) though no plans have been established as of this date.
The Postal Service will test open loop cards with fixed amounts as well as variable amounts. For variable cards, the Postal Service will establish a minimum amount, allowable incremental amounts, and a maximum amount. For both fixed cards and variable cards, the Postal Service will establish limits as to the monetary value of the cards that can be purchased by a customer in a specified timeframe, in order to protect against fraud and money laundering. Currently, the Postal Service plans to sell fixed cards of $25 and $50, and to sell variable cards with a minimum allowed value of $26, and a maximum allowed value of $100; customers may choose any variable amount within that range in $1 increments. The Postal Service also intends to set a $500 daily maximum face value of cards purchased per customer, and a $3,000 weekly maximum face value of cards purchased per customer.
Initially, the cards will only be available for purchase at Postal Service retail windows, and will not be sold at Automated Postal Centers (APCs) or on USPS.com. A card will be activated by the retail associate when it is purchased. Once activated, the funds loaded onto the card will be immediately available. The market test is planned for two calendar years. In May 2011, the product will be launched in 2,000 retail locations that currently sell greeting cards, in order to take advantage of the inherent cross-selling opportunity between gift
cards and greeting cards (discussed further below). The test will then expand to up to 3,000 additional locations (including locations without greeting cards) in October 2011 to capture holiday sales.
The Postal Service will generate revenue from this test through an activation fee that customers pay at the time of purchase, in addition to the amount of money loaded onto the card. The Postal Service will retain a negotiated percentage of this fee, with the remainder being transferred to the supplier of the card. The payment of activation fees for open loop cards is
standard in the industry, and the fees typically run between $2.95 and $7.95; larger fees are typically charged for variable cards, and for fixed cards with higher dollar amounts. Initially, the Postal Service plans the following fees: $3.95 for a fixed $25 card; $4.95 for a fixed $50 card; and $5.95 for a variable card. Throughout the market test, the Postal Service may test different fee points that are competitive with the range discussed above, in order to determine what fees are optimal.
The test will run for two calendar years, unless the Postal Service decides to request an extension for an additional year, decides to establish Gift Cards as a permanent product on a quicker timeline, or terminates the test early. The path that is chosen will depend on the Postal Service’s evaluation of the costs incurred and revenues derived from the sale of the product.
Based on expected sales, the total revenue received by the Postal Service should not exceed the $10,000,000 threshold in any fiscal year, as adjusted for inflation pursuant to Section 3641(g). This test will be conducted between May 2011 and May 2013, meaning it will be conducted in part of FY 2011, all of FY 2012, and part of FY 2013. The Postal Service does not project that it will earn revenue exceeding $10,000,000 from its portion of the activation fee in any of these fiscal years.
In FY 2012, the gross revenue from this test (i.e., the total revenue generated by the activation fee, before that revenue is split between the Postal Service and the supplier) is expected to slightly exceed the inflation-adjusted threshold applicable in that fiscal year.