DEC. 14, 2010 • The emergence of the free-to-play online model as a major growth sector in the games business in recent years could not have happened as smoothy without companies such as InComm. Given the ranges of ages and incomes of people who play games online, the tried and true credit card payment systems was not sufficient.

Many consumers would rather pay as they go, and are not comfortable with offering up their debit cards to the Internet. Youngsters may have allowance money they can spend on online gaming, but no credit cards. Then there are those who would like an easy means of gifting game access to others. InComm is one of the major players in providing prepaid options to publishers and consumers, and DFC went to vice president of products and international Brian Parlotto for a first-hand perspective on this business.

DFC: So give us the big picture overview of InComm. What are your primary products? How long have you been around? How many employees do you have? How many clients do you have?

Brian: InComm was founded in 1992 to provide technology to the prepaid long-distance industry. Since that time, the company has grown to become the world’s leading provider of stored value gift and prepaid products, services and technologies, and has partnered with more of the world’s leading retailers and product providers than any other company.

InComm serves as a single source for prepaid solutions that drive growth, cost savings and differentiation for its partners. Its services enable product providers the ability to sell their products across one of the industry’s largest distribution networks and allows retailers to offer superior brands while capitalizing on the popularity of prepaid destinations and reload networks.

We employ more than 1000 people company-wide and are headquartered in Atlanta with offices in Australia/New Zealand, Canada, Japan, Mexico, Puerto Rico, the United Kingdom, Arkansas, California, Colorado, Florida, Georgia, Minnesota, Oregon and Texas.

InComm has established valuable relationships with retail leaders, including Wal-Mart, Target, Best Buy, 7-Eleven and many more, as well as numerous national leading product brands including iTunes, Virgin, AT&T, Verizon and T-Mobile.

DFC: How long have you been involved in the game card business? What changes have you seen over the past two years? How fast is growth occurring?

Brian: We have been involved in the game card business for more than three years. With online games seeing exponential growth, so has the need for alternative ways to make online payments for users without or not wanting to use a credit card. From 2008 to 2009 our game currency grew by more than 200%.

DFC: What is your primary business model? Can you give an estimate of how your revenue breaks down by 1) gift cards, 2) reloadable debit cards, 3) virtual currency cards, 4) downloadable content and wireless products?

Brian: We can’t provide a specific breakdown, but with more than 225,000 doors of distribution, reaching more than one billion customers weekly, InComm generated more than $10 billion in annual transaction volume in 2009. The company’s patented technology solutions, best-in-class category management expertise and award-winning vendor service helps to produce exceptional results for customers and partners.

DFC: Where do you see revenue growth potential from your EXISTING product lines? Which of these areas has the greatest growth potential?

Brian: InComm recognizes the consistent incline in digital content micro-transactions and is in a position to capitalize on that growth with product lines and partnerships such as iTunes, Shutterfly, Yahoo!, Zune and, the most recently acquired, Zeevex. Our a solid line-up of prepaid products available for consumers that are all projected to see continued growth.

DFC: From a consumer perspective what are the main advantages to game cards? What are the disadvantages? Do you still see a strong consumer preference for having a physical packaged product? How has consumer perception towards digital distribution changed in recent years?

Brian: Game cards allow unbanked, cash-based gamers the opportunity to purchase virtual goods without the use of a credit card or needing access to a bank account. It also gives those who do not wish to make micro-transactions with their credit cards the opportunity to complete online transactions simple and safely. In recent years consumers have become more cautious and less inclined to pull credit cards out of their wallets yet the digital age almost makes that action a requirement. We provide a sensible solution for a very online focused society.

The game cards also allow family and friends of avid gamers the ability to gift their loved one with currency for their favorite online games. We don’t see consumers losing their joy for package products, even when merging physical and virtual products.

DFC: We understand the game portion saw a significant increase in revenue during the first three quarters of 2010 over 2009. Why has that been?

Brian: The acquisition of Zeevex, an open virtual currency provider and digital content micro-transaction thought leader, can be attributed to a large portion of the increased revenue in our game prepaid cards. InComm is committed to innovation in the prepaid environment and the timing of this business venture perfectly aligned with trends in the industry. The Zeevex Xtreme Game Card is sold in over 31,000 U.S. retail locations.

DFC: At face value Zeevex appears to be an easy fit with InComm’s existing product lines. How well has Zeevex’s integration gone? Are there any concerns that Zeevex’s product line may be competing with products from some other companies for which you handle distribution?

Brian: We’ve had a very smooth integration process with Zeevex and work closely with Ron Williams, Zeevex cofounder and general manager. Zeevex is an open virtual currency provider, meaning users can redeem the Zeevex currency for virtual items across multiple games and platforms. This is a niche market that we have not yet fully tapped into, and we are happy to work with Zeevex in order to achieve success.

DFC: Tell us more about the Zeevex Digital Locker. What features does it offer, and how does it integrate with InComm’s other products?

Brian: The Zeevex Digital Locker allows gamers to manage their virtual lives, while helping brick and mortar retailers, as well as online games, generate new revenue. It is a virtual currency e-wallet where gamers can store and manage their digital assets (item codes, magazine articles, ringtones, music, etc.) from an unlimited number of online providers. It is also a gateway, since gamers “step through” the Digital Locker to access the free original and fascinating content provided by Zeevex’s Partners.

The locker allows Zeevex partners to engage each user. By putting a free virtual item code, coupon, discount, etc. in the Zeevex user’s Digital Locker, the Partner is giving them a chance to experience great content and attract new customers. Soon Facebook and Smartphone versions will allow Zeevex users to interact with our Partners from the places they spend a lot of time visiting.

DFC: How has your Australian and New Zealand introductions gone? What retailers have signed on and how have consumers responded?

Brian: Our continued global expansion to Australia and New Zealand has effectively introduced us to each market and will enable us to better serve retailers based out of the respective countries, allowing for the continued growth of the company’s prepaid retail solutions.

DFC: We understand you are looking at Brazil and Mexico. What has it taken to prepare to enter the Brazilian and Mexican markets? How are they similar, and how are they different from each other?

Brian: From the many steps taken to enter these markets, the single most important one for both has been understanding their tax laws and treatment of our products from a taxing perspective. This due diligence process is the same while the considerations, time and outcome are very different.

DFC: What products and services are you entering Brazil and Mexico with, and why?

Brian: Here the answer applies again to both countries. We are entering with Content products because most Content products are truly international products distributed via the Internet and easily adapted to suit the country’s needs.

DFC: What products and services, if any, did you have to leave out for Brazil and Mexico, and why?

Brian: All other product categories have to be built in-country for various reasons, however the most complex one is Financial Services because most of these products are regulated.

DFC: InComm has had some success in Japan. South Korea, Taiwan, Hong Kong, and Singapore all seem like other good candidates in Asia. Do you have plans to branch out to other parts of Asia? If so where and when?

Brian: We’re always looking to expand our brand, and Asia is a valuable market to continue growing our presence in. At the moment we are evaluating new possibilities in several locations, but are currently focused primarily on our most recent expansion projects including Australia and New Zealand.

DFC: How many transactions did InComm process in 2009?

Brian: More than 400 million.

DFC: What are your estimates for total transactions and cards issued in 2010?

Brian: We do not answer specific projection questions, but 2010 has been a successful year for InComm with the expansion into Australia and New Zealand, not to mention the consistent growth of acceptance towards the prepaid industry.

DFC: What has the retail reaction been to game cards? What new retailers are you seeing entering the space? Are established game retailers concerned about game cards as a threat to their existing business?

Brian: Businesses in general are looking for ways to get their hands into the digital/virtual world pot. Selling game cards allows retailers to tap into the gaming space and expand their reach beyond the average prepaid gift customer and into the interactive entertainment industry.

This is also a great opportunity for game retailers, more accustom to selling console games and related products, to also touch the digital space in a new way. It’s a perfect location for the gaming enthusiasts to purchase game cards in addition to other game related gear they may be interested in – all under the same roof.

DFC: Some game cards are for individual products while some cards allow access to multiple products? Which cards are the most popular? What are the advantages and disadvantages of having a dedicated game card? When does it make sense for a publisher to look at doing their own dedicated game card?

Brian: We find that the industry is very niche and gamers as equally unique in the games and product they prefer, as well as what form of game card they utilize. There are some players very dedicated to one and only game, which allows them to utilize game cards for that individual product; however, there are gamers who love to explore and play many different games, who in turn, enjoy game cards that allow them access to multiple games. In that case, an open virtual currency makes the most sense for them.

InComm’s likes to cater to all gaming and partner personalities and provide options both “payment preferred” types can take advantage of. Publishers, like gamers, are also uniquely individual and their own dedicated card may or may not make sense based on the type of gamers who are attracted to their product offerings.

DFC: Who are your major partners in the game card space? How many publishers do you work directly with? Is the trend more towards going directly to publishers or through a third party middleman?

Brian: Some of our respected partners in the game card space include, Cartoon Network, Gameforge, Ndoors, Outspark, Zynga and more.

DFC: What are your forecasts for the game card business over the next two to five years, both in the U.S. and on an international basis?

Brian: With the successful launch InComm had in the game card space, we see business continuing to flourish. The gaming industry is one of the few markets that has been steadily climbing and the payments topic has been a recent and major issue spotlighted. Consumers have begun to see and utilize the various payment options available to them, and developers and publishers are recognizing the demand consumers are making to adopt alternativeoptionsinsteadofjust credit cards.

Not only do we provide the option for people to gift gamers with virtual currency but those not wanting to use a credit card and those who do not have a credit card can walk to their local drugstore and buy game cards using cash. This system speaks universally to consumer of all ages and publishers of all types worldwide.