CardCash: The Cure for Unwanted Gift Cards
As we process applications for the 2012 Inc. 500 | 5000, we thought it would be worthwhile to shine a spotlight on some of the companies that are vying to appear on our ranking of the fastest-growing private companies in the United States. (For more information and to apply, click here). One that caught our eye was CardCash.com in East Windsor, New Jersey.
Forget decorum. Elliot Bohm wanted cold, hard cash for holidays, his birthday, or any other occasion that called for gifts to be given. In 2008, like in so many previous years, the post-holiday season had left Bohm with numerous gift cards he neither wanted nor knew how to get rid of.
Bohm understood the point of a gift card—the recipient could choose something that he or she actually wanted, and it was a more socially acceptable present than a $50 bill—something that Bohm’s childhood friend and future business partner Marc Ackerman had to remind him of.
But the one drawback of gift cards is that the recipent is still limited to shopping at one store. What Bohm wanted was liquidity.
When he went on eBay to sell his cards for cash, Bohm noticed that the market for this exchange was large but wrought with scammers. Buyers would routinely spend cash on a gift card that had already been redeemed.
Bohm and Ackerman began researching the market and learned that nearly $9 billion in gift card dollars goes unspent each year. So, they decided to capitalize on the "secondary gift card industry" by establishing a secure, online marketplace for it.
Their website, CardCash.com, is projected to earn $20 million in revenue this year. And if the entrepreneurial pair receives the venture capital they’re seeking, they believe they can capture even more of the $10 billion in unspent gift card money, annually.
CardCash’s success did not come without challenges, however. The first iteration of the website, ABCGiftCards.com, had a 15% fraud rate and numerous competitors. The company devised a three-pronged approach to separate themselves from the pack and reduce buyer skepticism: Eliminate the fraud, focus on smaller margins and higher volume, and have exceptional customer service.
Bohm boasted that CardCash’s fraudulent rate is now below 1%, a reduction he attributes to the company’s thorough vetting process. By buying cards directly and storing them at the office, CardCash established itself as a reliable service and eased customer worries about spending cash of gift cards.
The recession has made the service particularly attractive to both buyers and sellers. More people are selling their gift cards in order to pay their rent or buy groceries, while buyers are using CardCash as a new way to save on luxury items.
In a typical transaction, CardCash will purchase a gift card at 80% of its value, and then sell it for 90% of the initial value.
Cards for Target and Walmart are some the quickest-selling items on CardCash, as are those for gas stations and grocers. Nearly 75% of CardCash customers are return users, and the site nearly crashed in December 2011 following a holiday saving segment on CNN that featured the company.
"Once you get exposed to this market, it’s addictive," Bohm said.
With more capital, Bohm hopes to digitize CardCash’s services. (One possibility is a mobile wallet of gift cards, he said.) Bohm and Ackerman have retained all equity in the company, and any new funding will go into building out the 10-employee company’s infrastructure and scaling the business.
"We’re only tapping into a fraction of the industry," Bohm said. "There is definitely a lot of room for growth."
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