Above: Michael Smallwood, third from left and founder of Bitmo in Carlsbad, and his team have created an app for gift cards, recently received $3 million in seed funding. Photo by Steve Puterski
CARLSBAD — An app company is changing the way gifting is done.
The city’s latest tech sensation, Bitmo, is redefining the gift card industry through its mobile platform.
Bitmo is an app allowing users to send custom gift cards and exchange unwanted ones for other brands.
Owner Michael Smallwood started the project less than two years ago after speaking with retailers about the industry. Gift cards are a $160 billion industry, but Smallwood said 40% of the money is either lost or never redeemed.
Through his previous career experience, Smallwood was plugged in to growing mobile products and services. He saw an opportunity in the gift card market to solve several problems.
“Having been in mobile software for, really, my entire career … there was this disconnect,” he said. “Essentially it’s been unchanged for 25 years. Everybody had the same concerns. Loss is a big problem.”
The company’s first big success came from a partnership with San Diego State University and its students. Since the university owns all of the franchised retail stores on campus, Smallwood and his small team engaged in a pilot program.
It was a massive success as SDSU used its Starbucks location for the pilot. Hundreds of students registered with Bitmo and were redeeming their cards at a faster rate than industry standard.
“They loved the idea,” Smallwood said. “The results were phenomenal. The No. 1 piece of information they gave us was hey, ‘we’d like to use this beyond the walls.’ That’s when we started to grow the user base.”
Since then, Smallwood and company have expanded the team along with funding. Bitmo recently secured $3 million in seed funding in its second go round of landing capital investment. As for its revenues, the retailers pay Bitmo to engage and drive those consumers to their stores.
As for users, Bitmo targets millennials and is growing at an accelerated rate. Smallwood said company projections call for more than 1 million users by the end of the year; although he said the company may smash those targets by double or triple.
The company has 132 retailers on board with the app including such heavyweights like Nike, Nordstrom, Old Navy and Regal Cinemas. The value Bitmo provides is cutting down on the losses, getting people into the stores and reducing the amount of time people use to redeem the cards.
To cut into the 40%, customers must get back into the store to spend the money. In addition, Smallwood said it’s likely by getting a consumer back into the store, they will spend more money, which is an added value to the retailer.
“Rather than a prepaid store of liability, we store all the value in a fungible asset,” he added. “What that fungible asset means is … it’s held like in a bank account until the point of redemption.”
Now, if a user gifts another user to a specific store, the recipient can “exchange” the card for a different retailer. How the app works is a user connects their bank account to the app, then buys a gift card and sends it to a friend or family member.
In addition, Bitmo works with the retailers to drive traffic through incentives, such as increasing the value of the gift card, at no added charge to the users.
“It’s all about how we give a little bit more for all of our users, all of our customers and for all of our retail partners,” Smallwood said. “They want to get customers in the store, engage them and get them into loyalty programs.”