If you are a fan of CBC's Dragon's Den, you may recall this company, if not don't fret here is a YouTube vid of their appearance on the show.
CardSwap.ca is a company that allows Canadians to buy and sell gift cards. At the time of the Dragons Den appearance CardSwap ran a different business model than they do now. I actually took advantage of CardSwap once by selling them a Brick Gift Card I won in a local lottery and would never use. The card was worth $100 and they paid me $74 for it. Sure I lost out on the value but that is why CardSwap is around, so that you can get something instead of nothing if you were not planning on using the gift card. CardSwap would then turn around and sell the card below face value but higher than what they bought it off me at. That is where the company made its money, the difference between the purchase and sale price of the gift card. The initial marketing stated you could save up to 40% versus buying the gift card at the actual retailer or any place that sold the cards. By selling them below face value they hoped to attract the many frugal Canadians looking to get a deal.
Fast forward to 2012 and CardSwap has changed their business model into one that focuses more on a loyalty program rather than a straight discount. Which is why they are being featured here today, because of their CardSwap SwapPoints program. Instead of gift cards being sold at a discount on CardSwap they are now sold at face value. Wait a minute why would someone go the CardSwap and pay face value for a gift card when they can get them on their day to day travels to various stores? That’s where the new SwapPoints program comes in. When you buy a gift card from CardSwap you are awarded SwapPoints for that purchase.
The amount of points you earn depends on what CardSwap paid for the card and what margin they want to get for the sale of the card. Looking through the site it looks like you get the equivalent of 2% to 10% of most of your gift card purchases back in SwapPoints but I did even see one card even coming in at almost 42%. The return is all dependent on the value of the card and who the retailer is.
Those SwapPoints can then be redeemed for other gift cards, prepaid Visa Cards and even cash into your PayPal account. The standard redemption rate runs is 1,000 SwapPoints = $10 and 1,000 points is the minimum redemption amount. Typically this means you will have to make several gift card purchases from CardSwap before you start seeing a return. Frances Ho, one of the founders of CardSwap explained to me that most people will need to spend between $100 and $300 to get to the 1,000 point level. Before the change in their business model it didn’t matter whether you purchased 1 gift card or 10 gift cards, you saw the savings right away as those cards were bought at a discount.
As an entrepreneur and business major I had a hard time at first getting my head around the change CardSwap did with their business model because it could drive away one time buyers and first time buyers who are unsure if they would return for another purchase. As a loyalty consultant, I can understand from their end why they would make the change however. First is the term ‘loyalty’, they want people coming back to use their service so by moving to a points system they are hoping to encourage people to keep returning so they can build up enough of a balance to redeem. As is seen with any loyalty program another reason you go to a points or miles based system is that you bank on breakage.
What is Breakage?
In the loyalty world, Breakage is the number of points or miles that go unredeemed and are lost by program members either through account inactivity or point/mile expiration. Depending on the industry, typical breakage rates that loyalty programs try to achieve run between 10 and 25%.
So, I would place a guess that CardSwap initiated this change banking on the fact that some users would be attracted at first by the SwapPoints program but in the end may only buy one or two gift cards and never earn enough SwapPoints to make a redemption. That allows CardSwap to enjoy much better margins on the gift cards sold to these type of buyers rather than the smaller margins they saw before when the card was sold up front with a discount. I would be curious to see what CardSwaps numbers are like today in comparison to the old model as I would think that people who are one off buyers and not enticed by the SwapPoints loyalty program would forego buying cards via CardSwap and get them at the retailer (especially for us savvy points collectors who buy the cards at grocery, gas or drug stores on a credit card that has those particular category multipliers... I know I do)
Is SwapPoints a worthwhile program?
Absolutely, for the right type of person. If you are someone who regularly buys gift cards for yourself or as gifts then you should definitely utilize the CardSwap avenue. You will see savings on your gift card purchases once you start building up your SwapPoints balance and using those points either for more gift cards, the prepaid Visa cards or cash via PayPal.
At this time, CardSwap is offering $5 for free when you join their SwapPoints program so it is entirely possible that you could reach the 1,000 or $10 level with only one purchase of the right gift card.
Selling Gift Cards
Of course there is always the other side of CardSwap, but it doesn’t have anything to do with loyalty and that is the selling of gift cards to them. It is only fair to mention it however as it is vehicle behind the purchasing side of CardSwap. Essentially what happens is if you have an unwanted gift card you contact CardSwap with the retailer name and value and they will get back to you with an offer. If you accept the offer they will provide you a prepaid shipping label to send the card in and once they receive the card and confirm it is valid they will send you a cheque or credit your account with SwapPoints.
In conclusion, if you are someone who regularly buys gift cards then there is no reason you shouldn't sign up for CardSwap. However if you are like me and only buy gift cards once a year or even less then the process of signing up for Card Swap and earning some points that will never be used won't be worth it since you are still paying face value for the card and you have to wait for it to be shipped out. I would rather take advantage of bonus Air Miles or Club Sobeys Points (hence Aeroplan Miles) offers from places like Safeway or Sobeys when they are occasionally run, not to mention the fact that if I buy those cards from a grocery store I'll earn double Membership Rewards points on my American Express Gold Rewards Card.
Now, to the fun part! CardSwap offered me a $100 credit to try their site out but I am not much of gift card person and I asked Frances if I could instead offer it to one my Rewards Canada readers. She agreed and here is what you have to do to be entered to win the $100 CardSwap credit.
1. Follow @RewardsCanada on Twitter
2. Visit CardSwap.ca and find a gift card you think you would use the credit on
3. Tweet us the card you would pick, include @RewardsCanada @CardSwap and Hash tag #rewardscanada in your tweet
Copy, paste and complete this to make it easier:
@RewardsCanada @CardSwap I would choose the (INSERT MERCHANT NAME)4. Wait to see if you are chosen as a winner !
Gift Card #rewardscanada
- Deadline for entry tweets is 11:59pm MST on November 29, 2012
- Open to all Canadian residents (I love that Quebec raised their limit above $100 to have to register with them)
- Limit of 1 tweet per day/twitter account
- If you win, you don’t have to use the credit on the retailer you put in your tweets just in case you find another one of interest