Stored Value Gift Cards and Digital Goods
March 23, 2015
Re: _________________ – Opinion Request
Dear _________________:
This is in response to _________________ letter dated January 28, 2014, as supplemented by your email dated November 21, 2014. The Department of Business Oversight
(Department) previously sent an acknowledgment letter dated June 17, 2014. You have requested clarification of the Department’s interpretation of the definition of “stored value” as set forth in Financial Code section 2003(x) of the Money Transmitter Act (Financial Code section 2000 et seq.) as applied to _________________.
BACKGROUND
_________________ is the issuer of the Gift Cards. Through the _________________ marketplace,
_________________ _________________ parent company, _________________, makes available to _________________ phone users mobile device applications or “apps,” entertainment and news media content and hardware. In order to be used on _________________, a Gift Card must first be activated and registered with _________________ to a particular user’s online _________________ account. A user may purchase digital content (but not hardware) on _________________ with a Gift Card. Gift Cards may not be used to purchase hardware, or physical goods, such as mobile phones and accessories, on _________________.
Gift Cards can also be used on a _________________ -owned channel to purchase digital content sold by _________________. Gift Cards can be used to pay for purchases or rentals of movies on ___________, a wholly-owned subsidiary of _________________. _________________ is the seller of the movies under its distribution agreements with the movie studios, regardless of whether the movies are sold or rented by _________________ on the _________________ marketplace or on ___________.
_________________ asserts that it is the “provider” of all goods and services purchased with the Gift Cards via _________________ because _________________ is in sole control of the _________________ marketplace. Examples of how _________________ controls the _________________ marketplace include:
Gift Cards are only redeemable by _________________, the issuer of the Gift Cards. Only _________________ can approve a transaction where a Gift Card will be used as payment. No other entity is authorized to approve transactions with a Gift Card or to redeem or accept value associated with Gift Cards.
– _________________ is the only location at which goods and services are provided to a user when redeeming a Gift Card.
– _________________, through _________________, participates in every sale of goods because the sale is subject to contractual terms agreed to (1) by the user with _________________ and, separately, (2) by the developer with _________________. These terms govern refund policies, restrictions on content, marketing restrictions, privacy and data security requirements, etc.
– _________________ has the sole discretion to approve or decline the participation of any party seeking to purchase or to provide content and apps through _________________. This control is enforced through various methods of monitoring by _________________, such as monitoring of URL content, monitoring transactions for fraudulent and money laundering activities, and verification of merchant identity before payout.
– _________________ provides the receipt to the purchaser identifying _________________ as the online marketplace where the purchase occurred, and the Gift Card was redeemed.
– _________________ is solely responsible for the delivery of digital content to the purchaser over the Internet. All content is stored on _________________ controlled servers, and _________________ initiates the electronic download to the purchaser. If the purchaser does not receive content that was purchased on _________________, the purchaser contacts _________________ (not the developer), and _________________ is responsible for re-delivery of content to the purchaser.
– _________________ provides the guarantee and customer service for delivery of purchased content. Thus, there is no payment risk to the Gift Card user from availability of content from developers on the _________________ marketplace.
MONEY TRANSMISSION ACT
Financial Code section 2003(q)(2) defines “money transmission” to include selling or issuing stored value.
Financial Code section 2003(x) defines “stored value” to mean “monetary value representing a claim against the issuer that is stored on an electronic or digital medium and evidenced by an electronic or digital record, and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services. The term does not include a credit card voucher, letter of credit, or any stored value that is only redeemable by the issuer for goods or services provided by the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.” Therefore, Financial Code section 2003(x) provides for an exemption from the definition of stored value for any stored value that is only redeemable by the issuer for goods or services “provided by” the issuer or its affiliate. The customary meaning of “provide” is “an act of furnishing or supplying a person with a product.”[1] Thus, an issuer of stored value may meet the “provided by” exemption if the issuer or its affiliate is the legal seller (i.e., title owner to the goods or services being sold) or if the issuer or its affiliate otherwise furnishes, makes available, or supplies the goods/services that are being purchased with the stored value issued by it. The question of whether an issuer meets this standard is a factual one.
APPLICATION OF MONEY TRANSMISSION ACT TO _________________ GIFT CARDS
_________________ is the issuer of the Gift Cards. _________________ and its affiliate, _________________, have demonstrated that the Gift Cards are only redeemable by _________________, and they are the “provider” of the digital goods and services purchased with the Gift Cards via _________________ because _________________ is in sole control of the _________________ marketplace.
A. _________________ Gift Cards Are “Only Redeemable” by the Issuer.
With regard to the process for redeeming the value of a Gift Card, only _________________ can approve transactions with a Gift Card or accept value associated with a Gift Card. A user must have a _________________ account with _________________ to use a Gift Card, and _________________ determines whether or not to approve a transaction where the Gift Card will be used as the payment method. Gift Cards can only be redeemed for purchases made on the _________________ marketplace. _________________ provides the receipt for purchases made with Gift Cards, and the receipt identifies _________________ as the online marketplace where the purchase occurred. Every sale is subject to contractual terms agreed to (1) by the user with _________________ and as to the user’s _________________ account, with _________________, and, separately, (2) by the developer with _________________ and _________________. For these reasons, the Gift Cards are only redeemable by _________________.
B. Digital Content Sold on the _________________ Marketplace Is “Provided by”________________ affiliate, ________________.
With regard to the _________________ marketplace, _________________ is solely responsible for the delivery of digital content to the purchaser over the Internet. The Gift Cards may only be used to pay for digital content, not hardware or physical goods, on _________________. All digital content is stored on _________________ controlled servers, and _________________ initiates the electronic download to the purchaser. If there is a problem with the delivery of purchased content, the purchaser contacts _________________ (not the developer), and _________________ is responsible for re-delivery of content to the purchaser. Because _________________ provides the guarantee for delivery of purchased content, there is no payment risk to the Gift Card user. For these reasons, _________________ provides the digital content and services purchased with the Gift Cards via the _________________ marketplace.
Gift Cards can also be used to pay for purchases or rentals of movies on __________, a whollyowned subsidiary of _________________. Because _________________ is the seller of these movies under its distribution agreements with the movie studios, it is provider of this content as well.
CONCLUSION
For all of the foregoing reasons, the Department has determined: (1) the Gift Cards are only redeemable by the issuer, _________________; and (2) its affiliate, _________________, provides the digital goods and services through the _________________ marketplace and ________. Therefore, because _________________ is the issuer of the Gift Cards, and the Gift Cards are redeemable by _________________; for digital goods or services provided by it and its affiliate, the Gift Cards are exempt from the definition of stored value pursuant to Financial Code section 2003(x).
If you have any questions, please feel free to contact me at (415) 263-8528.
Sincerely,
Jan Lynn Owen
Commissioner of Business Oversight
By
Jennifer L.W. Rumberger
Senior Counsel
cc: Robert Venchiarutti, Department of Business Oversight, San Francisco
[1] Black’s Law Dict., Online Legal Dict. (2nd ed. 2004) <http://thelawdictionary.org/provide> [as of March 23, 2015]; see also Merriam-Webster Dict. <http://www.merriam-webster.com/dictionary/provide> [as of March 23, 2015] (“to supply or make available”).