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Summary:

The gift card business has nearly quintupled from $20 billion in 1999 to $100 billion in 2010. Along with the growth has come a unique problem: nearly $5 billion worth of cards go unclaimed every year. Cardpool, a San Francisco-based startup, wants to solve that problem.

Gift cards, as far as my friend Barry Ritholz is concerned, represent the end of civility, as with them the giver says: I put very little thought into buying this for you. But for me, lack of time — or information about the recipient’s tastes — prompt me to buy them, and increasingly so.

Whatever the motivation, I’m not alone. The gift card business has nearly quintupled since 1999, to stand at some $100 billion. According to credit card-processing firm First Data, sales of merchant-branded gift cards were up 2.1 percent during the most recent (and economically challenging) holiday season. But along with the growth in the number of gift cards being purchased has come a unique problem: More and more people are forgetting to use them. According to some estimates, nearly $5 billion worth of cards go unclaimed every year.

In my case, I simply ignore some of these cards that I receive, mostly because they represent brands that don’t measure up to my sensibilities. Pottery Barn, The Gap and Macy’s are among the brands found in my unused gift card collection. I’ve often thought how great it would be if I could swap them for cards from retailers that I do patronize, like Amazon or iTunes.

Anson Tsai and Tim Wong had the same thought, and to that end have created Cardpool, a San Francisco-based startup that offers a platform to buy or sell (and eventually trade) unused gift cards. This tiny little company has raised about $130,000 in angel funding from the likes of Mitch Kapor and Y Combinator. Tsai’s MIT classmate and close friend, Xobni co-founder Adam Smith, is another angel investor in the company that launched last week.

“If you look at it, many of the systems in the financial industry are totally broken and consumers are the ones who are taken advantage of,” Tsai said. “Gift cards are a broken industry.” It is said nearly $30 billion in gift cards have gone unclaimed over the years.

Tsai plan for generating revenue for Cardpool involves building a black box that marries gift card trade data (buying and selling information) with machine learning and analytics and using the system to make money off the arbitrage. The problem is that in order to do that, the company needs to have very high trading volume on its platform.

And there is also a very crowded marketplace to consider. Several small startups, such as Gift Card Rescue, Rackup, Swap A Gift, Plastic Jungle and Gift Card Buy Back are also looking to profit off the unused gift card market.  Frankly, it’s hard for me to tell one service from another as they’re all remarkably similar.

Tsai believes that the sheer simplicity of his service is what’s going to help Cardpool stand out amongst the sea of competitors. He’s also confident that the automated back end is going to help the company get a leg up. That said, Tsai and Wong clearly have their work cut out for them.

They are going to have to figure out a way to get more users to their platform. For now, the early signs are encouraging — Cardpool saw about 100 transactions in its first week. If they can grow that number to a few thousand transactions a day, they might have a big enough business.

Last week, when I met with Tim Brown, chief executive officer of IDEO, the Palo Alto-based design powerhouse, we marveled at Mint, the finance startup that was recently acquired by Intuit for a whopping $170 million. We talked about why it was a breath of fresh air because it removed the complexity surrounding financial services, cheating the system, in a way, in order to make consumers’ lives a little bit easier. In other words, Tsai and Wong are right that this act of simplifying and demystifying financial services is a wide-open opportunity –- one that is ripe for the taking.

  1. Here’s what a Gift Card communicates to me: “I wanted to get you money, but I didn’t trust that you wouldn’t spend it on something stupid, so I’m restricting what you can use my money to purchase”. Of course I understand when my parents send a gift certificate for Ikea, it means “you need furniture, but we trust your judgement as to which furniture suits you best” or when my sister gives me an Amazon.com gift certificate it means: “since I live on the other coast, this is the easiest way to send money, and since were all Amazon.com Prime, it’s just like money”, but other than that the first thought applies…

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  2. I don’t accept gift cards. I’ve sent gift cards back to people and said thanks, but no thanks, I’d rather have cash.

    I also don’t send gift cards. I’ll send cash. People who think that’s rude don’t get it. Gift cards are rude. Cash is always welcome.

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    1. Otto

      That is a strong position to take. I like it :-) By the way growing up, uncles and aunts all gave me cash, which kinda came in handy when in college.

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  3. Giftcards can hardly be seen as a form of modern marketing. Most giftcards have little experience economy attached to them. I also believe it is a missed chance to give somebody a token which can be meaningful. The I-am-so-busy-argument in my opinion is weak and sounds immature. You are able to figure out which startups will ‘rule the world’ , but you aren’t capable of asking a friend what a person likes or dislikes. Like most things in life: its a choice.

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  4. I used Cardpool to get rid of some old giftcards I had lying around. The transaction was pretty straightforward and easy.

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  5. nice website idea…..wow have to say though a gift is a gift to me no matter how much thought it took…life is waay to short to over analyze why someone got me a gift card instead of an item or cash!

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    1. Monal, I have to agree with you! Jeez, people — if someone took the time and spent their hard-earned money to buy you a gift, feel blessed and enjoy it. Why spend YOUR precious time feeling slighted because the giver wasn’t 100 percent sure what you’d like? He or she tried!

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  6. The awesome thing is, I’m always guaranteed a discount if I buy the gift cards off of CardPool. So even if I’m not getting the gift cards for someone else, I’d rather purchase items from the stores with these discounted gift card instead of buying directly from the store at full price.

    Also, I just bought a couple gift cards from these guys. They get delivered uber fast.

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  7. I love the idea and I sure see the need.

    Best of luck to Anson Tsai and Tim Wong, though at this stage it’s hard to say in what way they’re different than the rest of the gift card swap platforms recently emerging.

    It makes little difference though. If they’ll catch enough market share, they can make it happen!

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  8. Gift cards has a place and it does work. I have purchased gift cards in the past from Chapters book stores in Canada for my nephews and nieces who love to and are avid readers, so here I am giving them a gift of what they like but leave it to them to choose what they would pick to read. So you see my purchase of gift cards has always been targeted. I would never give a gift card from a store if I know that the recipient never shops at that store, so there is a bit of investigation involved before I buy gift cards in order to ensure that the gift card will indeed be used. But I still in most cases do give monetery gifts, that way they but what they want. Card pool is an interesting idea, I would certainly use it if I received a gift card I did not particulalry like. I agree with your analysis that their would need to really have a high trading volume in order to effectively monetize this application.
    Whatever you say about gift cards, the thought still matters

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  9. The fact that these services exist show that companies like eBay are stupid and don’t deserve to be around. You mean to tell me that eBay couldn’t just create a section on their site for gift card which would eliminate all of these competitors? They are the place online where people go to buy and sell and if Amazon and Best Buy don’t want to touch this, you might as well hand it to the company whose known for people buying and selling online.

    I’m sure all of the shills in the comments have great things to say but these services won’t be around for very long unless they find something more than gift cards to make money.

    I’ve seen some services where you bid on gift cards auction style where you’re guaranteed at least to “win” the amount you bid but you might get a discount. That’s probably better than sites like Cardpool.

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  10. Shite! Why didn’t I think of this!!
    If there’s one thing that’s going to save Silicon Valley, it’s that it remains a premiere magnet for smart, hardworking people who are constantly looking for the smallest opening to exploit.

    Good luck with this!

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