Payment Industry Perspectives: Q&A With Wayne Waxman of Coinstar

Traditionally, Coinstar has dealt with transforming loose change into more manageable bills. More likely than not, most everyone has seen a Coinstar kiosk in grocery store or big box retailer, but in recent months, the company has been building more partnerships with online games and payment companies.

Back in April, Coinstar partnered with Rixty to create an alternative payment platform that turned loose change into “Rixty Cards” at Coinstar kiosks. These cards, the same Rixty cards you would see on rack displays, can then be used for the purchase of virtual currency within the Rixty platform. Furthermore, and more recently, Coinstar also delved into the realm of prepaid online gaming cards with partnerships with game companies such as Aeria Games, Spare Change, and Wild Tangent.

These are new waters for the folks over at Coinstar, but we recently spoke with Wayne Waxman, Marketing Manager for the company’s E-Payment Services group, to take a deeper look into the company’s plans.

[Inside Social Games] Thanks for taking the time to speak with us. First off, why is Coinstar getting involved in online games?

[Wayne Waxman] We entered this space for several reasons. The online gaming market potential is exploding. It’s a high-growth category that really caters to a young demographic, specifically teens who may not have access to credit. According to Mercator Advisory group, an estimated $3.8 billion will be loaded on game and ring tone prepaid cards in 2009. This number has grown from the $2.8 billion that was loaded in 2007.

This really is an exciting opportunity for us and for our retail partners. Prepaid gaming cards help drive repeat visits from the loyal gaming audience and the products’ low price points drive trial – pricing starts as low as $5 – and hopefully encourages adoption.

[ISG] Entering into this market has meant a lot of partnerships. We alleady know of the partnerships with Aeria, Spare Change, Rixty, and Wild Tangent, but whom else might you have in mind?

[WW] On the prepaid card side, we are always looking for new product offerings and partners that will help drive traffic to our retailers and increase their shopper’s overall market basket. This is true for all our categories including online games.

[ISG] Let’s talk about Rixty for a moment: When we first saw the concept of turning change into virtual currency, it did seem logical, but very unorthodox. What sort of numbers and revenue are you seeing?

[WW] We just launched Rixty in June, so it’s too early to discuss. What I can tell you is that we are excited about the potential of reaching this youth audience.

[ISG] How about demographics? Is it primarily the teen audience using the new service, or are you seeing other trends?

[WW] We’ve defined the primary target audience as youth aged 13-24. The teen segment is certainly making up the greatest portion of purchasers at this point.

[ISG] Okay, so for the readers that don’t know, customers can go to a Coinstar machine and choose the virtual currency voucher to redeem on the Rixty website. However, it can only be used within Rixty’s partner platform. With so many online games and games platforms out there, do you have any plans to offer this service to other game platforms?

[WW] The Rixty product that is available on the Coinstar kiosk is what’s referred to as an eCertificate. A code is included on the voucher that is printed at the end of a coin counting transaction that can then be used to set up/add to a Rixty online account.

Since Rixty is a payment platform that can be used with a large number of online games, it made the most sense to partner with them through the Coinstar kiosk, which offers a limited number of products that carry a very broad appeal. As Rixty continues to look at expanding its product offering, Coinstar users benefit from a growing platform that continues to add new games and applications.

[ISG] What about subscription-based games?

[WW] Our focus is currently on prepaid products for ‘free to play’ online games where users can purchase small dollar virtual goods on an ‘as needed’ basis. In this model where small denominations and unpredictable purchase patterns are combined with the large number of teens without credit cards, prepaid at retail becomes an attractive and profitable option.

The subscription model on the other hand has a standard denomination charge that’s usually higher in dollar amount than virtual goods. Payments tend to hit on a monthly basis resulting in users being more apt to tie a credit card to their account for convenience and simplicity.

[ISG] This leads me to the more recent prepaid online gaming cards. Just for clarification, it currently works for titles associated with Aeria Games, Rixty Inc., Spare Change, and Wild Tangent, yes?

[WW] Correct. Aeria Games, Rixty, Spare Change and Wild Tangent prepaid cards are all available through Coinstar’s in-store racks. For Coinstar coin counting, it’s only Rixty.

[ISG] We have heard that cards for Facebook and MySpace games are coming. Will there be others that will eventually utilize these cards on social platforms?

[WW] The Spare Change prepaid card is already available through our prepaid card racks at retail and is the first and largest micro-payments system for social networks. In fact, Spare Change is accepted by more than 700 games and applications on Facebook and MySpace and is growing virtually every day.

[ISG] What are your predictions on growth in this new market?

[WW] We believe the industry will continue its high-growth mode for quite some time. This is mostly due to the following: 1) the ongoing evolution of online gaming and other digital entertainment applications. Product providers will continue to find new and exciting applications to engage a demographic that constantly demands it. 2) The demographic continues to grow. The youth population (aged 13-24) is expected to hit 47 million by 2010 according to the U.S. Census. Seventy percent of this audience engages in digital entertainment and 20 percent of their spending is on digital entertainment. Yet, the majority of this demographic is considered “Unbanked” – that is they have no banking or credit relationship.

The end result – high demand growth – the CAGR growth rate from 2005-2011 is estimated at 17.9 percent according to Mercator Advisory. Ultimately, the outcome is further monetization of these new virtual applications.

[ISG] Well, before we wrap things up, one last question: What does this mean for Coinstar, and what is next on your agenda?

[WW] Coinstar will continue to develop new products and services to deliver at retail that make life easier for the consumer and drive new traffic and new revenue streams for our retailer partners.

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