As if manufacturers of ribbon and wrapping paper hadn’t already been marginalized by gift cards, here comes digital gifting. Just send that card electronically with a click of a mouse. Forget about even the sleeve that stores the gift card.
There’s a bigger picture beyond that $25 Applebee’s or iTunes gift card. As people become more astute with their smartphones, buying, sending and even redeeming gift cards may become the way they eventually handle all transactions, bypassing banks and credit-card companies altogether.
“Since 90% of consumers who have a prepaid debit card also have a checking account, the threat to financial institutions is clear,” Lee Wetherington of Allen, Texas-based ProfitStars said earlier this year.
For retailers overwhelmed by the broader implications, the immediate concern is gift cards. While digital gift cards have been available on cross-channel retailers’ websites for years, the industry has more recently seen a marked increase in their popularity as a byproduct of the increasing ubiquity of smartphones.
“When we started offering digital [gift cards] in 2008-2009, the vast majority of people would print those cards out and redeem them in the store using that printed version,” says Mike Fletcher, general manager of digital solutions for Atlanta-based InComm. “Now, 28% of people are viewing the card from a mobile device. That’s a trend that has popped up in the last couple of years, and they’re aggressively moving to mobile redemption.”
Gift cards trending toward mobile is undoubtedly causing many brick-and-mortar merchants to quiver, considering that digital could potentially cut them out of the supply chain. “Every opportunity to bypass our stores is a threat,” says Lisa Dell’Alba, president and CEO of the 11-store Square One Markets, Bethlehem, Pa.
On the positive side, she counters, “If there is the potential to bring customers in utilizing these online tools, it could be a benefit to our business.”
Fletcher of InComm agrees. While in favor of retailers being proactive, he sees potential in at least two areas: loyalty and variety.
Take loyalty. Retailers can partner with manufacturers and other third parties to act as redemption spots for loyalty rewards. For example, customers could fill out a survey for a big-name energy drink and get a free can at the city’s most popular c-store. Such partnerships need time and forethought, but Fletcher says the electronic platforms for executing such ties exist and are only growing stronger.
For variety, the biggest opportunity is targeting the channel’s top demographic: the cash-only customer. Without growing the category’s footprint, retailers can use signage, interactive display screens and even the customer’s own cellphone to digitally offer cards beyond what’s on the rack. The person has more choices, but more important, at the register he or she has the option of paying with cash.
In both loyalty and variety, think of the smartphone as the device that lets shoppers land deals and also manage their finances. “Now you have an inexpensive way of fulfilling stored value and a way to redeem a reward that’s as easy as running it through a [point-of-sale],” Fletcher says.
The transaction uses the gift-card “rail” (or electronic pathway to authorize and approve) to complete the payment and open the door to additional incentive, loyalty and promotional tools. “People are using gift cards like they used coupons in the past,” Fletcher says. “But today, they can restrict coupons and brand them in ways that can be product-specific.”
NEXT PAGE: Load and Spend
Load and Spend
Consider this recent news: New York-based American Express said it would make its full-service, reloadable prepaid product, called Serve, available at Bentonville, Ark-based Walmart stores nationwide. Dallas-based 7-Eleven and Woonsocket, R.I.-based CVS drug stores are already selling and reloading the cards, with the total number of retail locations involved hitting 19,500.
“Our evaluation of the top nine leading prepaid-debit programs showed that American Express Serve now has the largest free cash-reload network … compared to its competitors,” said Madeline Aufseeser, senior analyst for Boston-based Aite Group, in a release. “American Express Serve is making it even more convenient for consumers to add cash to their accounts so they can use those funds to quickly and easily manage their personal finances.”
When a customer adds cash to the register, the money is immediately available for spending in the store or online wherever American Express cards are accepted. People can use it to pay bills or transfer money into a “linked reserve” account that acts like a savings account.
But some retailers are looking beyond becoming reloading centers for prepaid cards. Some are experimenting with how to involve their brand in the mobile experience, including tying digital gift cards to their store’s branded mobile app.
The bigger opportunity, says Fletcher, is tapping these devices to mine consumer behavior, especially the cash customer. “I’m a consumer today: My behavior is go into XYZ convenience store to purchase wireless minutes, but I don’t have a credit card,” he says. “The c-store can communicate to the consumer, saying, ‘Go to this XYZ mobile application,’ which will make the process faster. They don’t have to walk to the aisle to get something physical, and then they can even scan [a bar code] off the phone to pay.”
While the opportunities seem obvious, for retailers such as Dell’Alba, the issues remain ones of execution and detail. Although many prepaid wireless products Dell’Alba’s chain has carried have stagnated, the complexities and fast-changing nature of offering multiple prepaid options have kept her from taking a “head-first dive” into the category.
One of her concerns is with equipment and redemption. “I think this is a threat from a redemption standpoint,” she says. “There’s a cost-benefit analysis we have to do in making sure we have the right equipment. Fraud by redemption could be another potential issue, which we have seen a major increase in over the last few years.”
That said, Dell’Alba says Square One Markets is “rethinking the category by looking for providers with a wider array of options and a better, more ‘user-friendly’ program” from an implementation standpoint.
She hopes, at that point, to finally put a bow on this fast-moving category.
The Digital ‘Rush’
Your last-minute holiday shopping this year may not mean battling long lines at a department store, with more and more Americans choosing to send that last-minute gift online through a digital gift card.
Atlanta-based InComm, a provider of prepaid products and services, conducted several studies recently. Among its findings:
▶ 28% view their digital gift cards from a mobile device vs. printing them out.
▶ The busiest day of digital gifting is Christmas Eve.
▶ Digital gift cards are already popular. In a pre-holiday study released late last year, InComm said that of the consumers surveyed, 67% have previously bought a gift card from an online website, mobile website or mobile app, while 33% have not. Respondents answered questions about their purchasing habits and their intentions for purchasing gift cards from websites and mobile devices, as well as digital cards specifically.
▶ Digital gifting is already on the rise. In that recent InComm study, 88% agreed that they were likely to purchase at least one gift card from an online website, mobile website or mobile app last holiday season.
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