Stockpile’s Moment of Truth

A gift card marketed by a little-known startup and backed by shares of stock in big-name companies is coming to J-hooks near you.

Gift card marketers have dominated the holiday season and other gift-giving occasions in recent years, but now a card is coming to thousands of those checkout-lane racks that will let budding investors buy or give away shares of stock in a favorite company.

Stockpile Inc., which started out in the summer of 2014 with stock-backed digital cards sold from its Web site, will be hawking plastic in more than 14,000 stores across the country this month, according to Dan Schatt, chief commercial officer at the Palo Alto, Calif.-based startup.

This move follows a test Stockpile ran last holiday season in some 400 stores. What the company discovered, Schatt says, is that “there’s pent-up demand to own stock. People were buying these things three at a time on average.”

The recipient of the gift card can open an account at Stockpile, which operates its own brokerage, when they redeem the card and receive the stock behind it.

Recipients who don’t want the stock can exchange the cards on Stockpile’s Web site for a conventional gift card good at a favorite retailer. “We don’t want to force anyone into an investment,” says Schatt, “but the vast majority take [the cards] as stock.”

The company will not disclose actual sales figures or data on how many accounts it has opened so far. Schatt says retailers ordered “roughly a million” cards for the test. Now, he says, with the rollout in progress, they’re asking for “multiples” of that. “Every card is a potential account,” he says. “The only way to redeem it is to open an account.”

The appeal goes beyond the ability to acquire stock in a company, or give the stock as a gift, with little of the hassle and expense of a traditional brokerage account. People are also drawn to the cards by the powerful allure of brands like Apple or Tesla. “What you’re attracted to is the name on the card,” says Schatt.

Credit Cards And PayPal

For the rollout, Stockpile has opened a link to the prepaid card network operated by Pleasanton, Calif.-based Blackhawk Network Holdings Inc. That is putting the cards into national and regional chains like Lowe’s, Staples, Safeway, Toys R Us, Kmart, Sears, and Kroger, as well as shopping malls. “Virtually every big-box retailer and grocery store has gotten really interested” since the test, Schatt says.

The cards, backed by major publicly held brands, come in standard gift card denominations, though Schatt says the average purchase during the test was $145. In this way, the cards offer potential investors the option of owning fractional shares in expensive stocks that might sell for hundreds of dollars for a single share.

People of all ages buy the cards, but the young seem particularly attracted to the concept. Half of the buyers so far are under 30, Schatt says, with a fair measure of “kids and teens,” who can open an account with parental supervision. “Everybody’s talking about Millennials, but it starts even earlier than that,” observes Schatt.

Helping to sell the concept is that while Stockpile operates a brokerage, it does not offer investment advice or engage in fancy activity like options or margin trading. That simplifies the process because it means fewer questions have to be asked, for example, about the potential account holder’s financial position and appetite for risk. “We’ve got account-opening down to 90 seconds,” says Schatt.

The brokerage charges a fee of 99 cents per redemption, regardless of dollar amount. The cards carry their own fees. A plastic card at the $100 denomination, for example, will cost the buyer $107.95 to compensate the network, the merchant, and Stockpile. The digital version costs $101.99. On the other hand, buyers can use credit cards and PayPal. “No other brokerage in the country allows you to buy stock with PayPal or credit cards,” says Schatt, a former PayPal executive.

‘Tip of the Iceberg’

Now Stockpile is hoping to sell companies on using the cards to build loyalty by inducing people to buy their stock. “This is becoming the ultimate loyalty currency,” says Schatt. “Imagine getting stock from a retailer as a result of shopping there.”

Ben Jackson, a director of the Prepaid Advisory Service at Mercator Advisory Group who follows the prepaid card market, sees loyalty as a looming opportunity for Stockpile. “It’s a way to win over the super brand-loyal people out there,” he notes, who will buy the cards to own a piece of a favorite brand.

Schatt also hopes to interest financial institutions in selling the cards. Very few banks and credit unions operate their own brokerages, he says, and those that do cater only to high-net-worth individuals. “We can offer the opportunity for someone to log in to an online-banking app and buy stock,” he notes.

Mercator’s Jackson thinks Stockpile’s concept could work, especially with a loyalty angle tied to specific brands, but will require plenty of consumer education. “I worry they’ll get a lot of people who are enthusiastic for the first card and then panic and lose interest when they realize stocks go up and down,” he says. “They have to do a lot of education of cardholders, now stockholders.”

He’s also concerned that gift recipients might not view stock ownership as quite as exciting as, say, a new Xbox. “In the world of instant gratification, [stocks] are a little less instantly gratifying than socks,” he says. “What I’m struggling with a little bit is this concept of will people invest and do something with the stock or is it just some oddball asset sitting there?”

But Schatt is unfazed. The retail network Stockpile is building out allows the company to reach potentially millions of everyday customers, and not just for gift cards. “Gifting is just the tip of the iceberg,” he says. “We’re the only brokerage product people will see in all those stores.”