The Rising Tide in Digital Gift Cards

Here’s how smart providers will ride the wave by pleasing customers.

The gift card industry has significantly transformed over the past decade. With our modern world becoming more and more digital, brands must find ways to adopt the changing technology while keeping customer experience and protection at the center of what they do.

It all started with the paper gift certificate. From there, gift cards evolved to magnetic stripe cards, emailable cards, and now digital gift cards, with contactless redemption options, on the smart-phone platform.

The rise of e-commerce and mobile commerce has made gift cards more accessible, enabling users to purchase them from anywhere and use them online or in-store. QR codes, readable at the point-of-sale device, make it easier for customers to pay with their cards without having to keep a stack of them in their wallet. These simple digital advancements will be instrumental in helping merchants create a more personalized gifting and gift card experience.

Indeed, there is a great opportunity for merchants to promote and differentiate themselves in the emerging digital gift card space. This new world, for those who solve their customers’ problems, offers tremendous opportunities to build customer relationships, kindle trust, and generate revenue and recognition.

Despite the digitization of gift cards, consumers still have a greater affinity for physical cards. In the physical world, the experience of giving and getting gift cards is built-in. There is the card, the greeting card that goes with it, and the presentation of putting it in a stocking at Christmas or with a birthday cake. In the digital world, there isn’t much of that—a problem worthy of solving.

Pain Points

Some pain points are self-inflicted, by merchants and by gift card platform providers. For instance, merchants that have not updated their point-of-sale devices to accept contactless or to read QR codes or 2D barcodes make it difficult to redeem a digital gift card.

With digital gift cards, many merchants have been slow to offer consumer advantages, such as the ease of showing the balance. How difficult is it for a merchant to instruct the gift card platform to make balances available to digital gift card apps? Anything less is shortsighted.

A particularly intriguing problem, easily solved by merchants, is the risk inherent in the secondary gift card market. Here, consumers can buy at a discount from sellers who do not want their gift cards. Fraud in this market can be quite high because, after the sale, the seller and the buyer both have the gift card account number. The seller can still use it to make purchases.

This results in a high-risk situation. Buyers who are defrauded may associate the bad experience with the brand. The simple solution is for merchants to allow gift card platforms to rip and replace account numbers, so the buyer receives a new account number and the original number is rendered invalid.

There are many legitimate reasons why a gift card recipient may want to trade or sell gift cards on the open market. Some recipients live outside the company’s geographic area. Some may not shop at a particular store or eat at that restaurant. Refusing to support gift card holders with basic and readily available technology reflects poorly on merchants.

A primary incentive for merchants to disallow rip-and-replace technology is the breakage companies receive for unused gift cards. Breakage can be a windfall for merchants and is very measurable. What is not as measurable is the frustration consumers experience with the merchant when the recipient cannot use the gift card or safely sell it.

Relief for consumers from these pain points requires merchant participation. The good news is that brands that embrace these trends can create a more personalized and engaging customer experience. The ability to safely swap out their gift cards across brands gives power back to consumers. It allows them to customize their experiences, showing that merchants value their customers’ preferences.

Even then, the merchant is the winner. It allowed its card to be put in the hands of a new or existing customer who wants it. And it gained the appreciation of those who, for their own personal reasons, just needed to sell or trade their cards.

A Modern Experience

High-quality mobile apps are being created that will provide an easy way for merchants to delight their customers by giving them the flexibility they desire. Customers want the ability to upload, manage, and keep track of their gift cards and balances in one place. This added convenience helps to incentivize further spending with the brand.

Making gift cards available within up-and-coming, high-quality mobile apps can make it easier for customers to purchase and access the cards any time. Merchants must not only embrace digital gift cards but also embrace everything digital has to offer, including the display of balances and safe and easy gift card management. Support of third-party gift card exchanges and point-of-sale technology makes paying with digital gift cards simple. It puts the customer first, providing information and flexibility customers crave.

Many emerging trends in gift cards are derived from consumers’ increased need for ease of use, flexibility, and customization. To generate the loyalty and participation brands desire from gift cards, they must embrace solutions that will offer a more modern experience. One that provides protection and empowers customers to use gifted funds in a way that suits their needs.

The rising digital tide has the power to float all merchant boats. But merchants who are tightly moored to the past may very well be sunk by the enormous digital swell that is beginning to crest.

—Jerome Myers is chief product officer at Prepaid2Cash