A Pennsylvania-based start-up is working to expand the availability of local merchants' gift cards through software that makes virtual versions for online use.

The goal is to open traditionally local sales to the rest of the country.

CardCodez.com's software allows business owners to sell both physical and digital gift cards online and connect them to their existing point-of-sale system for scanning at their registers. Its offering is meant to improve sales for merchants while reducing the costs associated with physical cards.

Other companies also support online gift card issuance, such as Giftango, Transaction Wireless, DimpleDough Inc. and CashStar Inc., but the virtual gift card market still represents only about 2% of total gift cards sold, notes Ben Jackson, a senior analyst with Mercator Advisory Group.

Increasingly, virtual cards are "a necessary part of the universe," he says. "Companies are going to want them the same way they wanted mag-stripe cards."

Participation and volume will determine CardCodez.com's likelihood to succeed, Jackson says. "That's what prepaid depends on for success," he says.

CardCodez.com's software doesn't replace merchants' traditional plastic card programs. The company works with them to add the ability for merchants to sell electronic gift cards and to track the cards online, company co-founder Shawn Borelli said in an interview.

The software automatically generates a unique ID and barcode for each gift card sold. It then delivers the virtual gift card to the identified recipient's e-mail address. CardCodez.com plans to develop a text-messaging system for distribution that could be available in about six months, Borelli says.

Recipients may print the gift card and bring it to the merchant for use toward their next purchase, or they may choose to save the virtual gift card on their smartphone and show the bar-code display on the phone's screen for scanning at the time of sale.

The product launched Aug. 7 after a year-long system test involving five merchants in Pennsylvania, New Jersey, Illinois and Indiana, Borelli says.

CardCodez.com is starting small, having supported just 2,000 cards with a total of $300,000 in value since the first merchant went live with the software in September 2011. Its goal is to have 1,000 merchants using the system by the end of the year, Borelli says. He would not predict how many cards they might issue and the value they might hold in their accounts.

Business owners using the software may create unlimited gift card promotions, collect gift card payments online and track online gift card sales through a Web-based interface. The system doesn't require any additional hardware, and it can integrate with almost any point-of-sale system, Borelli says.

Four pricing tiers are available based on card volume, with the cost per card dropping with greater issuance. Merchants pay $49.99 per month to sell up to up to 50 cards monthly, $99.99 for up to 110 cards, $199.99 for up to 240 cards and $399.99 for up to 500 cards monthly.

Included in all pricing tiers is the ability to customize branding and card styling, Borelli says. CardCodez.com will provide local marketing support, online advertising and local promotional mailings.

"We may soon offer an affiliate version of the software so businesses may refer friends of other merchants and receive a commission from doing that," Borelli says.

Businesses using CardCodez.com collect payments for gift cards sold by integrating their Authorize.net or PayPal merchant accounts. All transactions are secured and protected through a secure socket layer connection for Payment Card Industry Data Security Standard compliance.

CardCodez.com also eventually plans to open the software up to the Google Wallet, Borelli says.

The company has no immediate plans to support network-branded cards, "but in the future we're looking at leveraging more technology and networks to help merchants sell more cards," Borelli says. "We could create a mobile app and a Facebook app where merchants can integrate the system to sell through their Facebook page."

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