Market appetite and profitability for online balance transfer from gift cards into a bank account in South Africa

Abstract

EXECUTIVE SUMMARY Gift cards were invented to solve many problems within the financial sector. They largely do very well for the majority of its recipients within the government disbursement space, retail gifting, small marketplaces and the corporate incentive space. However, there is an adequate number of recipients that would prefer to have money in their personal bank account due to the shortcomings of the product. This consultancy report sought to find out how much money recipients would pay to transfer their gift card balances and if there is a revenue/profit opportunity. This report was written to assist the management team from a technology enterprise, in deciding on whether they should move forward with this novel venture after one of their innovation team employees, managed to solve the transferring of gift card balances. The researcher’s task was to advise them if adoption and the fee that customers are willing to pay will meet the requirements set out, given the parameters that they have provided us, which includes costs and expected revenues. If they do meet requirements, the researcher was asked to model the income statement to show projected profits of the venture. With this being a new venture, they also requested for information on any unknown factors that popped up whilst analysing the data. The researcher set out by checking if there is indeed a sizable market that receive these gift cards, as volume of sales will be key to profitability in real terms. After finding that there is a R13 billion market in open loop gift cards (suitable for transfer). The researcher proceeded to model an online questionnaire of which it received 229 responses. A third of the population did indeed receive a gift card but none had received the gift card from the government disbursement channel which was a shortcoming in the data collection. This unfortunately reduced the target market from R13 billion to R8billion. Despite the reduced target market, the findings from the data showed that at least 21% of the R8 billion market were willing to transfer at a 5% variable cost or a R50 flat fee. Due to the cost of sales incurred in the transfer, the higher of the two values will be applied. This favourable figure came with the caveat that investment will need to be placed into marketing initiatives as well as a 5% increase in cost of sales due to the population unanimously opting for a real-time transfer of funds, instead of a delayed transfer that was cheaper. Options were put forward for marketing approaches as well as contact centre strategies, given the findings from the data as well as the literature review. These options for cost and gross profit were modelled using a Monte Carlo Simulation which revealed a R17.7 million profit. The project was also put through a Net present value calculation to ensure profits in the long run, of which it still exceeded expectations. The final recommendation to the management team was to go forward with the venture whilst investing in marketing and on-boarding an in-house contact centre capability.