Americans have cut their credit card purchases during the economic downturn.
But the use of prepaid cards and mobile payment platforms continues to grow.
One startup looking to profit from those trends is Portland, Ore.-based
Backers include the
Giftango taps into a market that CEO David Nelsen calls “virtual gift cards,” which he describes as cards or certificates that are issued by a merchant and instantly sent to a recipient’s mobile phone by email or text message. The recipients then redeem the cards or certificates either at online sites or at brick-and-mortar stores.
“We’re finding that when you give someone a choice of a card right away or getting it shipped, they prefer right away,” says Nelsen, a Web and software serial entrepreneur who launched the company in 2005, but held off on fund-raising until this year.
Nelsen says he plans to begin raising a second round of funding over the next several months, and has already received several inquiries from venture investors.
Giftango sells its service directly to merchants, who pay a monthly fee and other charges based on use. Per transaction fees are lower for cards that are used frequently, which tend to be for small purchases, such as at a coffee shop card. Likewise, the fees tend to be higher for big-ticket merchants.
The initial funding comes as venture investors are demonstrating a rising interest in the alternative payment and gift card categories.
Giftango is one of two gift certificate-focused companies to report new funding last week. Plastic Jungle, which operates a site that allows people to buy and sell pre-owned gift cards, raised an additional $1.2 million in Series A funding, according to regulatory filing.
The Clovis, Calif.-based company has now raised $6 million since spring from
Plastic Jungle CEO Gary Briggs says that activity on the site is growing at a rate of 15% to 20% per month, but he declined to specify how much revenue the company is earning.
Certainly, even a small slice of the gift card market adds up to a sizeable sum. Briggs, a former chief marketing officer at eBay, estimated that there are about $40 billion worth of unspent gift cards stowed away in consumers’ homes, desk drawers and sock drawers.
However, this holiday season may add less to consumers’ sock drawers than previous years. While use of prepaid cards overall is up, holiday gift card sales are expected to either stay flat at $24.9 billion or fall by 5%, according to a survey released this month by Archstone Consulting. While Americans are still buying gift cards, their average value has dropped $6 or 11.5% to $46, according to the survey. —Joanna Glasner