[Federal Register Volume 76, Number 12 (Wednesday, January 19, 2011)]
[Notices]
[Pages 3180-3182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-969]


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POSTAL REGULATORY COMMISSION

[Docket No. MT2011-2; Order No. 647]


Market Test of Gift Cards

AGENCY: Postal Regulatory Commission.

ACTION: Notice.

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SUMMARY: The Commission is noticing a recently-field Postal Service 
proposal to conduct a 2-year market test involving the sale of gift 
cards. This document describes the proposed test, addresses procedural 
aspects of the filing, and invites public comment.

DATES: Comment deadline: February 4, 2011; reply comment deadline: 
February 15, 2011.

ADDRESSES: Submit comments electronically via the Commission's Filing 
Online system at http://www.prc.gov. Those who cannot submit comments 
electronically should contact the person identified in the FOR FURTHER 
INFORMATION CONTACT section by telephone for advice on filing 
alternatives.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 
202-789-6820 or [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Background
III. Notice of Filing
IV. Ordering Paragraphs

I. Introduction

    On January 5, 2011, the Postal Service filed a notice, pursuant to 
39 U.S.C. 3641, announcing its intent to initiate a market test 
beginning on or about May 1, 2011, of an experimental competitive 
product, Gift Cards.\1\ The market research test will provide customers 
the ability to purchase a card loaded with a specified sum of money 
which can be sent as a gift through the mail. Id. at 1.
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    \1\ Notice of the United States Postal Service of Market Test of 
Experimental Product--Gift Cards, January 5, 2011 (Notice).
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II. Background

    The Postal Service states that gift cards have become highly 
popular gifts in recent years. A recent survey found that gift cards 
are the most requested holiday gift. Id. at 2. Citing a nexus between 
the use of gift cards for gifting and the use of the mails for sending 
gift cards, the Postal Service asserts that selling gift cards at 
Postal Service retail locations will increase customer convenience and 
enhance Postal Service revenue by encouraging the use of the mail. Id.
    Description and nature of market test. Pursuant to 39 U.S.C. 
3641(c)(1)(B), the Postal Service provides a description of the nature 
and scope of the market test. Under the proposed market test, the 
Postal Service will test the sale of ``open loop cards.'' These are 
cards branded by a Retail Electronic Payments Network (REPN) (e.g., 
American Express, Discover, MasterCard, or Visa) and can be used by the 
gift card recipient at any merchant that accepts cards administered by 
that network. Id. The Postal Service will enter into an agreement with 
one or more issuing banks, REPNs or service providers. Cards will be 
sold either as standard cards by the supplier(s) or customized, co-
branded cards with Postal Service imagery. Id. at 2. Open loop cards 
will be tested with fixed and variable amounts with minimum, 
incremental, and maximum amounts. To protect against fraud and money 
laundering, there will be limits on the value of cards purchased within 
certain timeframes. Id. at 3.
    The Postal Service will operate only as a sales agent. Id. The card 
supplier will provide all customer support. Id. at 2.
    The Postal Service may test closed loop cards (i.e., cards specific 
to a particular merchant), but those plans have not yet been 
established. Id. at 3.
    At first, cards will only be available at Postal Service retail 
windows. Cards will neither be available at Automated Postal Centers 
nor on the Internet at

[[Page 3181]]

http://www.USPS.com. Cards will be activated upon purchase by a Postal 
Service retail associate and will be immediately available once 
activated. Id.
    The test is planned for 2 years. Id. The product will be launched 
in May 2011 in 2,000 retail locations that currently sell greeting 
cards to take advantage of cross-selling opportunities with greeting 
cards. The test will expand to up to 3,000 additional locations 
(including locations without greeting cards) in October 2011, to 
capture holiday sales. Id. at 4.
    Product. Initially, the Postal Service plans to sell gift cards in 
fixed amounts of $25 and $50 and cards in variable amounts with a 
minimum value of $26, a maximum value of $100, and any amount within 
that range. Id. at 3. Planned activation fees will be $3.95 for a fixed 
$25 card; $4.95 for a fixed $50 card; and $5.95 for a variable card. 
Id. at 4. A $500 daily maximum purchase per customer and a $3,000 
weekly maximum purchase per customer are planned. Id. at 3.
    Revenue to Postal Service. Revenue will be generated through an 
activation fee paid by customers at the time of purchase in addition to 
the value of the card. Id. The Postal Service will retain a negotiated 
percentage of the activation fee for open loop cards. The supplier 
would retain the remainder of the fee. Id. Different fee levels may be 
tested to determine the optimal fees. Id. Activation fees are not 
generally levied on closed loop cards. If closed loop cards are tested, 
the Postal Service may enter into a revenue sharing arrangement with 
the closed loop card supplier. Id. n.4.
    The Postal Service indicates that the gift cards will comply with 
the Credit Card Accountability, Responsibility, and Disclosure Act of 
2009 (Pub. L.111-24). Id. at 9. It further states that any fees that 
may be charged to card recipients, or to merchants who accept the gift 
cards, would be set by the card supplier(s) in compliance with 
applicable laws, including Public Law 111-24. The Postal Service will 
not receive any revenue from such fees. Id. at 4 n.3.
    The annual revenues received by the Postal Service from the market 
test will not exceed $10 million (as adjusted for inflation) in any 
fiscal year. Id. at 5; see also 39 U.S.C. 3641(e). In FY 2010, the 
gross revenue from activation fees is expected to slightly exceed the 
inflation adjusted threshold in that fiscal year. Id. at 11. Although 
the Postal Service may have that revenue in its possession during the 
period, its share of revenue retained will be less than $10 million. 
The Postal Service argues this complies with the statute. 
Alternatively, the Postal Service requests an exemption from the 
statutory threshold of $10 million for FY 2012 because the three 
criteria for a section 3641(e)(2) exemption are met. Id. at 12.
    Statutory authority. The Postal Service indicates that its market 
test to sell gift cards satisfies the criteria of 39 U.S.C. 3641, which 
impose certain conditions on experimental products. For example, gift 
cards satisfy the statutory definition of a ``product.'' The Postal 
Service asserts that the product is significantly different from all 
products offered by the Postal Service within the meaning of section 
3641(b)(1). Id. at 5. It has not sold gift cards or any equivalent 
product in the 2-year period preceding the start of this test. Id. at 
8.
    In addition, the Postal Service contends that the market test will 
not create an unfair or inappropriate competitive advantage for the 
Postal Service or any mailer, particularly small business concerns. Id. 
at 9; see also 39 U.S.C. 3641(b)(2). Gift cards are available from a 
variety of retail locations. Id. at 8. The Postal Service will market 
the gift cards in a manner similar to the way that other retail 
channels market gift cards. Id. at 9. The product introduction will 
have a very small impact on the market, not to exceed 0.5 percent of 
the open loop gift card market. Id. Also, the Postal Service would 
compete with larger retail chains whereas small businesses have a small 
part of the overall gift card market, thus resulting in minimal 
competition with small businesses. Id. at 9 n.8.
    The Postal Service classifies the product as competitive. Id. at 5, 
10; see also 39 U.S.C. 3641(b)(3). The gift card market is highly 
competitive. They may be purchased at a large variety of retail 
locations thus precluding the Postal Service from exercising any market 
power to charge excessive fees or to provide an inferior product. Id. 
at 10.
    The Postal Service states that the duration of the market test will 
not exceed 24 months unless the Postal Service requests an extension 
from the Commission, terminates the program, or establishes the Gift 
Card as a permanent product. Id. at 10-11; see also section 3641(d)(1).
    Definition of product. The Postal Service may conduct market tests 
of experimental products. A ``product'' is defined by 39 U.S.C. 102(6) 
as a ``postal service with a distinct cost or market characteristic for 
which a rate or rates are, or may reasonably be, applied.'' An 
experimental product must therefore be consistent with the statutory 
definition of a ``postal service.''
    The Postal Service asserts that the sale of gift cards is 
consistent with the statutory definition of a ``postal service.'' A 
``postal service'' is defined by 39 U.S.C. 102(5) as ``the delivery of 
letters, printed matter, or mailable packages, including acceptance, 
collection, sorting, transportation, or other functions ancillary 
thereto.'' The Postal Service notes the Commission has recognized that 
this definition includes the sale of products ``that bear a close nexus 
to the mails, including products that allow mailers to connect with 
others on a personal level (greeting cards), and products that allow 
mailers to send cash equivalents (money orders).'' Id. at 6.
    The Postal Service claims that gift cards would support customers' 
mailing needs by providing convenient access to a product that is 
commonly used for sending gifts through the mail. Id.
    The Postal Service states that gift cards are commonly sent with 
greeting cards. It further states that gift cards are very similar to 
money orders. Id. at 7. The Postal Service asserts that gift cards 
purchased from the Postal Service are likely to be mailed. Id. at 8. 
The Postal Service contends that the nexus between gift cards and mail 
exists regardless of whether the card is open loop, closed loop, or co-
branded with Postal Service imagery and need not contain Postal Service 
intellectual property to be consistent with the statutory definition of 
``product.'' Id. Thus, the Postal Service concludes that gift cards 
that it may test are consistent with the definition of a postal 
service. Id. at 6.\2\
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    \2\ The Postal Service notes that the Commission previously 
determined the Postal Service's sale of stored value cards is a 
nonpostal service, but points out that the ruling was based on the 
record in that proceeding and other factors. Order No. 154, Docket 
No. MC2008-1, Review of Nonpostal Services Under the Postal 
Accountability and Enhancement Act, December 19, 2008, at 47-48.
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    Data collection plan. The Notice also addresses the Postal 
Service's plan to collect data to understand the retail costs of 
selling the product, the value of types of cards, card packaging and 
card locations to postal consumers, and different price points. The 
Postal Service indicates that these data may be reported to the 
Commission upon request. Id. at 13.

III. Notice of Filing

    The Commission establishes Docket No. MT2011-2 for consideration of 
matters raised by the Notice. Interested persons may submit comments on 
whether the Postal Service's filing in the captioned docket is 
consistent with the policies of 39 U.S.C. 3641. Comments

[[Page 3182]]

are due no later than February 4, 2011. Reply comments are due not 
later than February 15, 2011. The filing can be accessed via the 
Commission's Web site (http://www.prc.gov).
    The Commission appoints Robert Sidman to serve as Public 
Representative in this docket.

IV. Ordering Paragraphs

It is ordered

    1. The Commission establishes Docket No. MT2011-2 for consideration 
of the matters raised by the Notice.
    2. Pursuant to 39 U.S.C. 505, Robert Sidman is appointed to serve 
as officer of the Commission (Public Representative) to represent the 
interests of the general public in this proceeding.
    3. Comments by interested persons are due no later than February 4, 
2011.
    4. Reply comments are due no later than February 15, 2011.
    5. The Secretary shall arrange for publication of this order in the 
Federal Register.

    By the Commission.
Shoshana M. Grove,
Secretary.
[FR Doc. 2011-969 Filed 1-18-11; 8:45 am]
BILLING CODE 7710-FW-P