By Norman I. Silber (co-authored by Diego Matamoros)
March 6, 2014, The Huffington Post — Of Cash, Coupons and Groupons. The cash we hold in our wallet is just paper — but it is backed by the full faith and credit of the U.S. Government. Absent an impressive amount of folly in Washington it never will become worthless.
The gift cards and vouchers we buy around town and on the Internet, however, are much different. Mainly they are backed by the partial faith and imperfect credit of private companies whose foundation is sometimes shakier than consumers imagine.
Groupon, the market leader in daily deal voucher sales, is a case in point.
We may not realize it, but just like any loan, the money we load on a gift card or voucher is actually at risk. We’re betting that when it comes time to spend the card, the merchant will still be around, and able to repay what they owe. With gift cards from profitable corporate giants like BestBuy, WalMart, or Starbucks, that’s a pretty safe bet.
Groupon vouchers are very different from the gift cards sold by giant retailers. Consumers make their initial purchase on Groupon’s polished website, but to redeem their vouchers, they deal directly with Groupon’s network of small, often struggling merchant partners.
Not every voucher is redeemed right away. In just the few years since Groupon’s birth, the value of unused vouchers has apparently swelled to as much as $725 million. If the merchant responsible for a voucher goes under, Groupon promises to refund the consumer; but Groupon itself has financial difficulties, and so that back-stop holds questionable value.
In short, the company’s balance sheet has the elements of a ticking time bomb which could explode at any moment — leaving consumers and investors with little or nothing to show for their spending and investing.