Digital Gift Cards: The Ups and Downs of the Future of Gifting

Digital gifting has been in existence since the early days of e-commerce. One had to look no further than a major online retailer, or, even, online services like AOL to find ways to send a virtual gift card to a friend. It has been the perfect mechanism for those people, like me, who wait until the last minute to get gifts for friends and family who live outside of driving distance – or even inside. Why then, after so many years, has this industry not taken off?

Growth in digital gifting

The original digital gifts were bought online to be used online. The market was narrow and limited. Within the last decade, digital gifts have expanded. Companies like Blackhawk Network and InComm have augmented their physical distribution with digital versions of many of their partners’ cards. Gift card exchanges like Cardpool and CardHub allow users to trade in unused cards for those that better fit their shopping habits.

Additionally, merchant mobile commerce applications like Taco Bell and Starbucks either allow digital gifting to other users or utilize digital gift cards as forms of in-store mobile payment. In fact, the use of such mechanisms is what drives mobile payment numbers in the United States. More than 20% of all payments at Starbucks are through the company’s gift card on the mobile app, and Starbucks’ chief digital officer Adam Brotman anticipates that number climbing to above 50% within a few years.

What’s holding digital gift cards back?

With the exception of outliers like Starbucks and Dunkin Donuts, there are relatively few places to redeem digital gift cards in brick-and-mortar locations. As an example, receiving a digital card from Blackhawk’s online Gift Card Mall most likely means the user must print out the card, take it to the merchant and have the cashier manually enter the card number. Technically a digital gift card, in spirit, misses the mark. The user experience is full of friction that keeps most users away.

Additionally, even the successes of Starbucks and Dunkin can’t be replicated everywhere, and aren’t without their issues. In those scenarios, the user must bring up a barcode and scan it at the point-of-sale. That experience, while novel five years ago, is now getting dated. Due to scanner limitations, getting a phone display to get read actually takes slightly longer than using plastic, and thus carries friction for the user. And there aren’t point-of-sale systems and scanners at the table in full-service restaurants, or at gas pumps, so the model doesn’t work in those channels.

Lastly, there is the fraud issue. Digital gift cards, as currently accepted, are more susceptible to being used in fraudulent transactions than plastic cards.

What does the future hold for digital gift cards?

With advances being made in Apple Pay and Android Pay, and the associated terminal hardware, it is easy to see digital gifting growing substantially with the use of the two major omnimode mobile payment mechanisms. They tackle both the acceptance and some of the fraud issues. Yet, they have some ground to cover before they can work in all channels. When the user is separated from the POS, and when loyalty is involved, solutions are currently limited. Digital gifting will continue to grow, and when solutions are in place that cover all channels and loyalty, it is not farfetched to see it becoming the dominant form of gift giving.