The gift that doesn’t keep giving
Some of you will know the admirable efforts of Zil & I to keep the music industry afloat as we find any excuse to slope off to the nearest record store. The news today that HMV, the UKs best known music store went to administration was particularly distressing to me. We could talk about the perils, challenges and pitfalls of innovation, with HMV being the last nationwide entertainment only chain left, and Virgin France closing last week. To be fair HMV were one of the first chains to set up their own e-stores, but the world is a very different place than when they were set up 92 years ago. However, this blog was triggered by a different thought – gift cards. What is becoming apparent is that all those people holding gift cards are finding that they are now worthless. Only those people who bought them using traditional credit or debit cards are likely to be able to recover their funds (though note that even then they are under different sets of rules, and not a cast iron guarantee either). The issue in this case is that gift cards were closed loop, and as a result were just a promise to let you spend a certain amount in a certain store. They aren't backed by any legal promise for example. Whilst nobody is 100% sure how many cards are outstanding, it is the peak season for giving gift cards, and some estimates have surfaced of around £10m. So what does this mean, and what should this mean, for the payments industry? My initial thoughts is that this could pose a threat to the fledgling prepaid card industry in the UK. Whilst gift card malls are proliferating (those things you see in supermarkets at the ends of aisles), the gift card market is nowhere near as big or developed as the US yet. These events may well stall that growth. But will it cause a knee jerk response in regulation? In the US there have been some worries about the money laundering implications around prepaid cards, with numerous papers being written by the Fed, but increasingly there have been concerns around the transparency of fees in prepaid cards. For some of us this all very reminiscent of the sharp practices of the telephone cards market of the 90s. Whilst then the FTC brought in regulationsto tackle the problems and that went a long way in stabilising the market, it didn’t 100% solve the issue. And note that the cards in question were prepaid cards… So here’s a thought for us to discuss. Should all prepaid cards only be scheme issued to give that protection? But before certain groups get hot under the collar, at the same time, should schemes be reconstituted to ensure the breadth of their constituents are represented? It could be become large and unwieldy but owning the issue as an industry may head off some of the regulation which will be worse and probably the one thing we’ll all agree upon. Some issues will still exist but there will be more of an imperative by the members to address the issues. It's a deeply controversial suggestion I suspect - but doing nothing could ultimately be even worse.