SparkBase of operations

When Douglas Hardman, Chief Executive Officer of SparkBase, grabbed the reins of the company in February 2004, he promptly took the loyalty and gift card network apart. It wasn't as efficient and profitable as Hardman would have liked.

By October of that year, Hardman and his staff of developers had entirely rewritten the software that powers SparkBase and relaunched the network. While it ran better than before and was processing gift and loyalty transactions for about 1,000 merchants, Hardman was still not satisfied. SparkBase could be better.

In August 2005, version 2.0 of SparkBase was launched after Hardman and his staff had rebuilt the network from the ground up once more. "We built it once, and then we built it again because we were a lot smarter," Hardman said. "We knew what we would need now. We saw pretty quickly that our transaction volume was going up.

"But this wasn't going to scale as big as we thought it would. So right away we said, 'OK, let's put in the stuff that our merchants are looking for. Let's put in the scalability that our ISOs are demanding.'"

Lessons learned

The learning curve for SparkBase involved understanding the needs of its customers: ISOs. Alan Semel, National Sales Manager at the Cleveland, Ohio-based company, highlighted three main things ISOs need in gift and loyalty card programs: control, flexibility and reporting. ISOs want control of how programs are implemented and managed, Semel said. Through SparkBase's administrative portal, ISOs can add merchants, add or customize programs tied to individual merchants, and set up merchants on the fly.

"They can log into a merchant and finalize a deal and set them up right on the spot from their laptop with a wireless connection," he said. "That's a huge benefit because of that momentum." In other words, no lag exists between when merchants say yes to a program and when action is taken to get programs rolling, he added.

Program flexibility is also important, Semel noted. In SparkBase's world, flexibility means feature-rich programs. One feature merchants were looking for was a way to instantly connect with their customers. Thus, SparkBase implemented text messaging using simple message service technology for mobile phones. "Now, Ed's Ice Cream store is having a slow day; he hits a button; he can let a thousand [customers] know that he's got chocolate ice cream on sale today," Hardman said.

Additionally, ISOs told SparkBase that merchants wanted a way for their customers to check their gift and loyalty card balances. So SparkBase developed GetYourBalance.com, a Web site where cardholders can check their balances on gift cards in real time.

The final most important thing ISOs are looking for is reporting. "Some systems don't have good reporting or they limit the amount of information that they let the merchant - or that they even let the ISO - see," Semel said. "In our system, we're basically completely open."

ISOs can generate reports, or let merchants generate reports, in real time. After "a few milliseconds of a transaction happening, they can run a report, and it's already updated with that transaction," Semel said.

That speed is vital for businesses today. "The merchant needs instantaneous data," Hardman said. "That merchant needs to know who to call and how to get it fixed. ... They ought to know what their transaction volume has been for the last six months at a snapshot and see a graph of it. It needs to be all that data right now, no excuses."

Interchange for stored-value

SparkBase is content to stay firmly in the background. It deals only with ISOs, not merchants. That strategy is designed to avoid conflicts of interest and keep SparkBase's role in the value chain clearly delineated.

"I don't ever want an ISO to say, 'Hey, you talked to my merchant, and you were moving them over to here,' or, 'You sent them a bill for something,'" Hardman said. "We will not ever talk to a merchant without that ISO on the phone."

That's why SparkBase considers itself a type of interchange for stored-value. Although interchange is central to the payments industry, awareness of it among merchants is low, Hardman said. He wants SparkBase to keep a similar low profile with merchants.

"We're dedicated to being the fastest, biggest, most reliable stored-value network and nothing else," he said. "We worry about the ISO's problem. Let them worry about the merchant's problem."

To that end, SparkBase puts substantial effort into ISO training. Semel said it offers live, real-time, online demos that lead ISOs step by step through how SparkBase works, how to set up merchants and how to educate merchants about the network. "We believe that training is not just training the ISO, but providing them with tools to train their merchants and present their merchants with a workable program," he said.

Hardman likens SparkBase to a high performance sports car. "You can drive a Ferrari 25 miles an hour and you can drive it 200 miles an hour, and if you don't know what you're doing at either, you're going to screw up the gear box," Hardman said. "So, when we're training an ISO, we make sure they understand all the moving parts before they even get in the car.

"We're giving them a safety course on the right way to use a gift card program and the right way to talk to their merchants about it because the last thing we want out there is them mis-selling it - underselling or overselling capabilities - to the merchant because ultimately it's the merchant that will drive the transactions."

Six nines of uptime

SparkBase does no outsourcing. Hardman is proud to say that every line of code that powers the SparkBase network was written in-house. With 14 developers on staff, ISOs calling SparkBase with questions get them answered immediately, he said.

SparkBase's emphasis on in-house development and problem-solving facilitates quick and accurate turnaround times on terminal certifications as well, Hardman noted. In the days prior to exhibiting at the Electronic Transactions Association's 2009 Meeting & Expo, SparkBase needed only 72 hours to certify Hypercom Corp.'s Optimum M4230 mobile payment terminal.

"Part of the reason we were able to do that so quickly is we write everything in-house," Hardman said. Consequently, SparkBase's ISOs had access to a new terminal that they didn't have access to the previous week, he added.

SparkBase also operates its own servers. It has a tier five data center, as well as secondary and tertiary backup data centers.

Hardman said the network has had at most five minutes of down time in the five years it has been in existence, with most of that time coming in the first year of operation. Therefore, the company can boast of "99.9999 percent uptime over the last four-and-a-half years," Hardman said.

SparkBase is constantly in the process of improving its network. The company is currently working on version 3.0, with a July 2009 launch. "SparkBase is the only network right now that is still actively developing itself," Hardman said. While its competitors are content with the gift card networks they have in place, SparkBase is always striving to make itself better, he added.

CEO that was the CTO

Hardman, a self-professed "technology head," began as the Chief Technology Officer at SparkBase when the network was owned by the private investment firm for which he worked. In January 2007, Hardman bought the company from the firm.

While he has taken on the mantle of CEO, he remains passionate about the technology. "I know this technology better than any three people you're ever going to find," he said. When SparkBase holds in-person meetings with prospective ISO partners large enough to support information technology (IT) departments, Hardman makes a point of addressing their IT officers.

"And they know I'm not BS-ing them," he said. "I'm telling them exactly what language we wrote it in, how we wrote it and what procedures we used for that, how it is deployed, how it's going to interact with their systems in real time, what's not gonna be real time."

Once Hardman has the IT people "smiling," it makes the SparkBase solution an easier sell to the ISO's executives, he said.

Motivated by loyalty

As part of SparkBase's commitment to anonymity from the merchant perspective, its Web interface can be customized according to ISOs' needs and desires, from logos to color schemes and wording. SparkBase's footprint is nowhere to be seen.

"The best part about our network is it is completely private-labeled," Hardman said. "It has always been completely private-labeled. There's never been someone who has had a direct SparkBase gift card."

Semel admitted that gift and loyalty card programs are not the easiest to sell. "It's more challenging than just competing on price," he said. "It really is an understanding of what it can do for the merchant, the benefit for the merchant - coming up with a workable program and prove that it works. I do think it is key."

It is key to merchants, but also key to ISOs. "ISOs know that they need this, and they know that it's going to save their portfolios eventually," Hardman said. "They know that this is something merchants are clamoring for."

Loyalty programs are "very hot," Hardman said. "In this economy you have merchants that are seeing people that used to come in for dinner at least once a week. Now they are going out once a month. So they need to find a way to reward those customers for their loyalty. So the loyalty engine really needed to ... adapt to our current economy."

According to Hardman, properly executed gift and loyalty card programs can reduce merchant attrition by 30 percent; programs can also increase portfolios and subsequent revenues.

"There's 3.5 million businesses in the ZIP code that we're talking about - retail and spas," Hardman said. "There's only about 200,000 that are taken. So there's a lot of runway left."

SparkBase has approximately 50 ISOs offering its network to merchants, Hardman said. And he wants more. In fact, he wants them all: "If I'm going to be interchange for stored-value, I'll need every single one of them."

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