No. of Recommendations: 1
Company: Blackhawk Network Holdings (HAWK); Market Cap $1.45B

Business: Blackhawk offers a prepaid payment network utilizing proprietary technology to offer a broad range of prepaid gift, telecom and debit cards, in physical and electronic forms.

Value Proposition: Gift cards are sold in 180,000 locations and GiftCardMall.com from 650 merchants. An extensive network provides significant benefits to key constituents. Also distribute prepaid products through 2,000 business partners for incentives, rewards and loyalty programs through InteliSpend.

Strategy and Advantage: The retail distribution network principally consists of grocery, convenience, specialty and online retailers, including 90% of grocery store locations from the top 50 grocers. Kroger, Giant Eagle and Safeway generated 15.1%, 10.7 % and 10.5 % of our total operating revenues. US – 175 distribution partners in 45,000 retail locations. International – 21 countries, 230 partners, 130,000 retail locations.

Offerings include open and closed loop gift cards, general purpose reloadable (GPR) cards including HAWK branded PayPower and cards from competitors , reload network (Reloadit.com), and prepaid telecom (cards and handsets), prepaid solutions for digital wallets w/ GoWallet.com, and an online exchange for gift cards through cardpool.com.
Majority of revenues from commissions paid by content providers for the marketing and distribution of their prepaid cards (closed loop) gift cards. Ways they earn it: Content Provider Commissions, Reload Fees, Incentive Program Fees, Merchant Commissions, Transaction-Based and Other Fees, Post-Activation Program Management Fees, Interchange Fees, Marketing Revenue, Account Service Fees, Fund Expiration Revenue, Fund Expiration Fees, Card Production, Secondary Card Market

March 22, 2014 March 23, 2013
Load value $ 2,187,704 $ 1,609,841
Commissions and fees as a % of load value 8.1 % 9.0 %
Distribution partner commissions paid as a % of commissions and fees 66.6 % 66.4 %
Number of load transactions 44,638 36,806


Other Details: Began as a division of Safeway in 2001, incorporated in 2006, public offering for A shares in 2013, B shares spun out of Safeway in April 2014. Purchased InteliSpend and Retailo in Q4 2013.
Risks: 1) Top 5 distribution partners represented approximately 43.2%, 47.8% and 50.9% of our operating revenues in 2013-2011. 2) Operates in a highly and increasingly regulated state and federal environment. 3) MetaBank troubles with the OCC. 4) Data breaches. 5) The prepaid industry is highly competitive.
Big Few: Who does Walmart use? What products and services do the competitors offer? How saturated is the market?

Appendix A

Closed Loop Gift Cards

• Content providers pay us commission and fees based on load value. We share commissions with our distribution partners.

Open Loop Gift Cards • Consumers pay a flat fee upon card activation depending on load value. We share this fee with our distribution partners and content providers.

• Our issuing banks pay us additional program management fees and other fees for our Visa gift cards, based, in part, on unspent balances, and American Express pays us fees for certain ancillary services.

• We also earn a portion of merchant interchange fees when customers use our proprietary Visa gift card for purchases.

Prepaid Telecom Products • The telecom carriers pay us a commission based on load value. We share these commissions with our distribution partners.

• We purchase handsets from manufacturers and sell them with a markup to our distribution partners. Our distribution partners retain the full proceeds from the sale of handsets to consumers.

Prepaid Financial Services Products • Consumers pay flat fees for the initial purchase and subsequent reloads of our proprietary PayPower GPR cards. We share these fees with our distribution partners. In addition, we earn account maintenance fees and interchange and other transaction fees based on consumers’ continued use of these cards.

• We earn a fixed fee for each third-party GPR card we sell. We share this fee with our distribution partners. We also earn account maintenance and interchange fees from these third-party GPR content providers.

• When consumers reload GPR cards on our Reloadit network, we collect a fee, which we share with our distribution partners. For third-party GPR cards, this fee is also shared with the third-party GPR content provider.

Prepaid Cards Secondary Market • We earn a markup on the sale of pre-owned closed loop gift cards, which we purchase from consumers at a discount to the amount of funds remaining on a card.

Other Fee Categories • Program management fees, interchange, interest and unredeemed expired funds on incentives and rewards products.

• Marketing funds received from our content providers to support programs that we coordinate with our distribution partners for the in-store or online promotion of their gift cards.

• Fees related to card production and packaging services for content providers.

• Fees related to local, regional and sports team card programs
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