As the holiday season approaches, your desk drawers will likely start filling up with gift cards: those plastic rectangles that look like money but so often sit unused, forgotten and abandoned.
The US gift card market is valued at more than $200 billion, but the industry is dominated by two little-known companies, Blackhawk and InComm, and there has been little innovation in recent decades, even when it comes to mobile payment solutions such as Apple Pay and Google Salary has become more popular.
On Me, a new startup founded by Google veterans Darragh Meaney and Sitar Harel, says it’s poised to disrupt this duopoly with a digital gift card product that isn’t limited to individual merchants. On Me has raised $1.7 million in funding from the payments giant MasterCardas well as top New York entrepreneurial firm Lerer Hippeau.
“A lot of gift card gaming in the last 20 years has been wrapped around existing, very old technologies,” Meaney said. Wealth in the interview. “What we want to do is build new technology rails from the ground up.”
The gift economy
Gift cards may seem like an odd venture for two former Google employees, but Meaney says he was motivated to quit his “comfortable” job after seeing the technological advancements of mobile wallets. Instead of gift cards for specific restaurants or stores, Meaney and his co-founder’s idea was to build a digital version that could focus on specific hobbies, like running, be used in a network of stores, and integrate directly with Apple Pay or Google Pay.
He argues that single-merchant gift cards work on a “breakdown” basis, meaning that issuers earn revenue because gift cards remain unspent, and Blackhawk and InComm offer the infrastructure. “It’s really a classic VC story about a $200 billion industry ripe for disruption,” Meaney said Wealth.
On Me taps into certain stores that accept Mastercard, allowing its gift cards to be tailored to different merchants. In return, On Me earns affiliate income from dollars spent in stores, rather than relying on unused balances.
Mastercard invested in the company without returning capital, but instead became involved as an advisor. Meaney attributes Mastercard’s decision to a desire to bring the $200 billion gift card economy to its own merchant network. “They’re pretty interested in getting more interesting stuff on their trails compared to other places,” Meaney said.
He admits that gift cards just take money and “make it less fungible,” but argues that they’re still popular because most people don’t feel comfortable giving cash, or even cash-based debit cards, as gifts. Meaney says that by basing On Me on different hobbies, from beauty to dessert, gift cards can become even more customizable.
Isabelle Phelps, partner at Lerer Hippeau, said Wealth that her company was most excited about On Me’s updated payment rails. “It’s enabled secure, personalized gifting in large numbers that we think meets the needs of users,” she said, adding that “our phones are our wallets today.”
On Me launched in November with a team of six people and plans to expand the 70 or so categories available as gift cards, which include around 2,000 retailers.
