Virtual Reality

Digital versions are steadily increasing their share of the gift card market. Could they breathe new life into mobile wallets?

If the standard knock on gift cards is that they’re too easy, too quick, too thoughtless with respect to the recipient, then the same could go double for digital cards. At least plastic cards require a bit of effort. With digital, you just order one up and email it instantly—perfect for that certain someone who slipped your mind til 11:59 p.m. on Christmas Eve.

But if that’s the consumer perception, it doesn’t seem to be hurting gift card sales. And if it was especially dragging down digital sales, that’s no longer the case. U.S. consumers on average bought more than six of each type of gift card this year, up from 5.9 physical and 4 digital cards in 2016, according to the latest survey results from First Data Corp. To be sure, total dollars loaded are still weighted heavily toward plastic, though digital is growing fast.

Convenience, the ability to buy a card and send it to someone within seconds, has much to do with that. So does the wider availability of mobile wallets. And so does the hefty share of people who are simply buying the cards for themselves.

“There’s a shift to virtual,” declares Tim Sloane, vice president for payments innovation at Mercator Advisory Group, a Maynard, Mass.-based payments consultancy. One big thing merchants need to be thinking about, he adds, is “what do I do to not lose out, to have a solution for those who want a virtual card.”

One beneficiary of this trend could be mobile wallets, which consumers have not quite embraced as warmly as many experts predicted a few years ago. Some digital cards are already tailored expressly for redemption at the point of sale via a mobile device. But the possibilities go well beyond that.

“There’s a ton of gift cards that go unused every year. If you can store those cards in a mobile wallet, then there are many ways to interact with that customer,” notes Gerry Gilbert, head of product for merchant solutions at CashStar Inc., a gift card technology company that prepaid card powerhouse Blackhawk Network Holdings Inc. snapped up in August for $175 million in cash.

An example Gilbert cites: With a gift card code stored in it, the mobile wallet can alert customers to their prepaid value as they’re walking into, or through, a store. By contrast, he says, “a plastic card is dead in a drawer.”

“You almost can’t talk about digital gift cards without talking about the mobile aspect of it,” says Nikki Baird, a managing partner at Retail Systems Research, a retail IT consultancy. For example, once in the wallet, the code isn’t “lost in your email,” she says.

Apparently, this is a growing worry with the proliferation of digital cards. “We’ve seen concerns about what do I do if the cards get lost in the email,” Baird says.

Already, digital gift cards coded to be redeemed only through a mobile device are starting to show up on industry radar screens. After years of registering less than 1% of gift card loads, mobile cards began to grow past that barrier in 2016 and this year. Brands like Starbucks, of course, have built a digital reputation on the strength of mobile gift cards.

There are hurdles, however, in the way of mobility and gift cards. The idea works most smoothly when the card number can be read from the issuing company’s app on the customer’s phone at the issuing company’s point of sale, says Sloane. But, he adds, even this scenario sometimes breaks down. Some merchants, for example, fail to make sure their POS can accept the card. Or merchants operating as franchisees may not control their POS system.

When the card is stored in a third-party app, the picture gets more complicated, says Sloane. First, provisioning the card may work smoothly, or may not work at all. Then, there’s the issue of redeeming the card. Two good ways to do this are near-field communication and barcodes, but both present difficulties.

“The merchant needs to reprogram its POS to accept gift cards as NFC, which is not easy by any stretch, or the merchant and the wallet provider need to coordinate barcode data to be shared,” says Sloane. One other option is to bring up an image of the gift card stored in the app. “The picture in the wallet might include a barcode that was printed on the card itself,” Sloane says. “However, this is a bit less reliable at the POS.”

Such hurdles may explain why mobile-only redemption, while starting to grow, still accounts for a low single-digit percentage of gift card loads. But one factor that could force retailers and wallet providers to iron out the technical wrinkles is a tendency among consumers to buy digital cards not as gifts but for themselves.

Consumers are increasingly drawn to gift cards as repositories of rewards and incentives from retailers they like. Of those consumers who bought a virtual card this year, 29% did so for self-use, according to data from Mercator.

“As we look down the road, we’re going to see more [digital gift card] use, and it’s going to be self-use,” says Ben Jackson, chief operating officer at the Network Branded Prepaid Card Association. And the accompanying rewards, he says, “will be delivered in some kind of a mobile wallet.”

In other words, as with anything else in business, consumer demand will tend to dissolve what today appear to be intractable problems.

 

Beyond Virtual Gift Cards: Amazon Patents ‘Gift Rules’

It’s the time of year when the mind turns to gift-giving, and now there’s an alternative to the mundane gift card. Amazon.com Inc. last month received a patent for a new type of digital card that allows the recipient to buy anything that falls within so-called gift rules set by the giver.

The new system may help address one of the biggest objections consumers have to gift cards, particularly digital cards. Consumers fear the cards may seem impersonal or thoughtless, and virtual cards may seem even more so, since they can be ordered up nearly instantaneously and emailed at the last minute.

By contrast, the system now patented by online merchandising giant Amazon “imagines a new type of gift card alternative that’s a bit more personal than just a debit card with a brand attached,” says a blog post by CBInsights, a New York City-based investment-research firm that follows technology.

According to patent number 9,811,833, which was filed more than six years ago, givers can define parameters for a gifted item rather than restrict the recipient to a specific product. Parameters can include a price range, product type or brand, and even characteristics within a product. Books, for example, can be restricted to appropriate age ranges or type of media, or even by author.

To make it work, the giver enters an order that includes at least one of these gift rules. This order is attached to a set of credentials that can be used by the recipient to order the product. Programming would reject any order that doesn’t meet the giver’s rules, with a prompt to the recipient to enter another choice.

The giver can also permit orders that exceed a specified price range, with the giver paying no more than the upper limit of that range, aping the flexibility of an ordinary gift card.

It’s probably too soon for the 2017 holiday gift-giving season, but look for a new kind of “gift card” from Amazon before long.