A Conversation with Mark Schatz, President, Stored Value Solutions

Mark-Schatz_SVS_We recently spoke with Mark Schatz, President, Stored Value Solutions (SVS). In this Q&A format we discuss the market position of SVS, the evolution of e-gift/mobile wallet solutions, and other trends in the gift card sector including M&A and new use cases.

As a recognized leader in the payments, stored value and financial services industries, Mark Schatz brings 30 years of experience to his role as President of SVS. He has held senior leadership positions at Fifth Third Bank, Discover, and at National Processing Company, where he managed the 2nd largest merchant processing business in the United States.

As President of SVS, Mark’s focus is to drive innovative technology and superior service – so that clients achieve maximum sales, gain new customers, delight and keep their existing customers, and achieve long-term growth.

Stored Value Solutions is the world’s premier provider of gift card, promotions, and rewards processing and program management for the world’s largest retailers. As a leading stored value service provider, SVS manages more than 700 million card products and processes over 1 billion transactions annually. SVS is based in Louisville, KY and is owned by Atlanta based Fleetcor Technologies, Inc (NYSE: FLT).

1. Can you give us a brief update on SVS since the acquisition of Comdata by FleetCor in 2014? In terms of your go-to-market strategy, have there been any changes?

It’s interesting… I get asked this question a lot, but there really is no change to the go-to-market strategies of SVS or to our service and support of our top retail brands. SVS is a platform company that has changed hands as part of a broader deal several times in our history. The fact is we are a growing business that provides the best service in the market to retailers looking to use gift cards to acquire and retain their customers. We deliver results to our owners and continue to provide innovation to the market.

2. The core gift card product is well-established, but how does SVS support other use cases for its clients (e.g., promotions, B2B/incentives, loyalty programs, etc.)?

SVS has a custom promotions platform that we launched back in 2009 that provides systematic controls retailers need to run effective, fraud proof promotions. Promotions today make up more than 10% of SVS total transaction volume and are driving return visits and incremental sales for more than 50 top retail brands. As a matter of fact, for a couple of our customers, the promotions run on our platform are core to their marketing and pricing strategy. Consumers love gift cards… when they receive a gift card as a promotional tool or a reward for shopping, they view it differently than a discount. It is viewed as a gift… free money. That is why we consistently drive redemption rates of greater than 45%. If you compare that with coupons or a mass discount, the take rates and the margins are better for retailers.

3. Retailers are investing a lot in digital channels, loyalty programs, etc. and many are fighting through headwinds to grow. What is your perspective on the retail environment? As it relates to gift cards, are there any new market trends or emerging opportunities that are on your radar screen?

The retail environment is tough… it’s highly competitive, but many retailers are figuring out how to navigate what consumers want and what the retailer can realistically deliver. Consumers just want a good, easy experience that they can understand and that provides value for them. But their definition of value is changing. It’s no longer synonymous with price. It’s about their time and convenience. From a gift card perspective, this means there are new opportunities for ensuring that physical gift cards bought in store and online can be provisioned into mobile wallets and that these cards can be tied to loyalty programs or offered as rewards. Another opportunity is to ensure gift cards are just as present in online stores as they are in physical locations and that the delivery is just as compelling. Interestingly enough, we just completed consumer research focusing on if/how millennials are buying gift cards and any trends emerging from this younger demographic. It turns out they are buying more gift cards (9.7 per year vs. 8.0 per year for other demographics), half physical and half digital. The convenience and usability of gift cards is an important part of their decision to purchase gift cards.

4. What is your general view of the pace of market adoption for e-gift cards and how will mobile wallets influence e-gift activity?

e-Gift cards have been widely adopted by retailers, and consumers appreciate the convenience of being able to receive an e-gift card online. That being said, e-gift cards still represent a small percentage of gift cards that are purchased primarily as gifts. Despite the small base, e-gifts are a popular choice for last minute shoppers and for less formal gifting occasions. E-gifts that are used for B2B purposes, like rewards and offers, are appealing to consumers and retailers due to the immediacy and choice that it presents customers, and are likely going to be the primary driver of growth digitally.

However, most retailers have not invested in the technology necessary to make redeeming e-gift cards seamless at the point-of-sale, and instead rely on hand keying account numbers to redeem cards. This method works, but does not present the optimal experience for customers and doesn’t take advantage of all the security practices available to protect gift cards.

This is where mobile wallets can provide a tremendous benefit. As major mobile wallet providers embrace support for retail gift cards, as Samsung Pay did in 2015, and especially as the technology streamlines the redemption process, we expect to see an uptick in digital redemptions. This includes plastic cards that have been provisioned in a mobile wallet, e-gift cards purchased online, and e-gift cards that are used as rewards and offers delivered directly to consumers’ phones.

We know that consumers like to receive and redeem cards digitally, but gift-givers still have a strong preference for physical cards. Mobile wallets provide an option to bridge that gap and enable digital redemptions more broadly. With that trend, combined with the growth opportunities in digital B2B programs, we expect to see an increase in the growth rate of e-gift activity.

5. Given all of the recent M&A activity in this sector, from mobile technology to B2B providers to marketplaces, how should SVS clients/prospects think about consolidation and disruption in gift cards (e.g., integration, channel access, vendor management)?

Most of the M&A activity and consolidation that has occurred have been in technologies and services that promote the distribution of stored value cards and provide incremental opportunities for retailers. From a B2B perspective, this business activity is resulting in more opportunity for retailers to offer their stored value programs (both physical and digital) as part of loyalty and reward programs sponsored by banks, airlines, and other organizations.

While SVS has taken a targeted approach with partners to make sure that we can offer an end-to-end solution that provides access to the most relevant marketplaces, we have always been channel-agnostic. We see our role as helping our customers build the strongest stored value programs they can, and to optimize the most meaningful distribution opportunities.

To that end, SVS has invested heavily in building out an API infrastructure that is geared towards integration with multiple channel partners and technology platforms. To the extent that innovative functionality exists that could help SVS offer a more robust solution, we look at commercial partnerships, acquisition opportunities, and internal product enhancements to achieve that goal.

One of the more compelling trends in the market right now is a shift from merchant hosted gift card applications to a third party provider. Because of our singular focus on the gift card space, our ability to integrate with all relevant partners, and our consultative program management strategy, SVS is uniquely positioned to help merchants make that leap without incurring the uncertainty and risks of the shifting landscape.

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