Amazon, First Data see Big Opportunities in Digital-Gift-Card Market

Digital gift cards represent a small segment of the $100 billion prepaid-card market. But the segment is growing rapidly, with digital gift cards gaining popularity among merchants and consumers because of their flexibility. Traditional plastic gift cards prove costly to manage and deploy and are thus an unattractive option for small and midsized businesses. The advent of mobile as a platform for digitizing gift cards has made the segment highly efficient and cost effective for businesses big and small.

The idea of using mobile for gift cards was popularized by Apple’s Passbook app. In the past few years, numerous merchants have jumped on the mobile-gift-card bandwagon. Amazon and First Data are recent contributors to the market, in line right after Google Wallet.

First Data has acquired the company Gyft to enter the digital-gift-card market. Gyft, a virtual-gift-card provider, is believed to have pioneered the techniques of managing gift cards via mobile. On the other hand, Amazon is looking to enhance the nonpayment side of its mobile wallet service by focusing on consumer-oriented content, such as gift and loyalty cards, to be delivered via the mobile wallet service.

A few weeks back, the Google Wallet app was updated to incorporate gift cards. The app offers the ability to store loyalty cards, and users can now leverage its gift-card-management capabilities. Although such mobile wallets were developed with mobile payments in mind, that market has not shown enough growth for mobile wallet providers. Gift cards present an opportunity to understand consumer engagement, and merchants look forward to broadening their service offerings. Mobile wallets are the most viable option for ensuring that gift cards are always available to use.

According to Forrester research, half of loyalty-program members strongly demand gift cards. According to research conducted by First Data, digital-gift-card sales grew 71% from 2012 to 2013. According to a survey of retailers conducted by Mercator Advisory Group, virtual and mobile gift cards’ share of the overall gift-card market in the U.S. nearly tripled from 2012 to 2013.

Speaking of Amazon initiatives in the digital-gift-card market, the company has teamed up with Blackhawk Network, a prepaid and payments network. Amazon is now enabling its mobile wallet users to store, redeem and manage gift cards for numerous retailers and restaurants. Users can also redeem their gift cards during in-store purchases. First Data is planning to leverage its acquisition of the Gyft gift-card mobile app to provide access to gift-card programs to its 300 national retail prepaid clients.

With big names like Amazon and First Data entering the market, we could be seeing the first steps toward a broader mobile payments strategy in the near future.