Over the past several years, gift cards have become the most popular kind of gift. They are the most widely-used addressable person-to-person payment method, totaling $91 billion in sales during the 2010 holiday shopping season. We love them because of their convenience. And we hate them because they don’t truly feel personal.
The mobile digital device will help to wipe away this awkward paradox. The days of plastic-based payment and gift cards are numbered. The ability to make a payment or send a gift from any device, anytime, anywhere, in any amount, dramatically shifts the convenience paradigm. And the gift card’s shift from plastic to digital may pave the way for other forms of digital payment.
Here, we’ll take a look at the three major factors driving this shift.
1. Embracing Digital Gifting
The first is the exponential growth of businesses that are embracing digital gifting. They are doing so to extend their revenue streams and to differentiate themselves from their competitors. RSR Research reported in late 2010 that half of the top 100 Internet retailers now offer digital gift cards. In January, Starbucks estimated that digital gift cards would represent as much as 20% of its gift card business in the near future.
But there are hundreds of others shifting away from plastic as well — from global brand names to smaller regional and local retailers. According to Urban Wallace Associates, more than 6 million U.S. shoppers bought digital gift cards within the past 6 months — a 150% increase since last measured three years ago.
2. Virtual Goods
The second key trend is increased purchasing and gifting of “virtual goods.” This market — already nearly $2 billion in the U.S., according to Inside Network Research — has millions of fans who love to buy and give gifts like virtual cakes, clothing, badges and FarmVille goods.
The next logical extension is for consumers to give digital gift cards that can actually be used to buy real stuff. Facebook already sells its credits as gift cards in retail stores. As the popularity of Zynga, Facebook and digital gift card currencies grow, they may well become major payment modes in both the virtual and physical worlds.
The third major trend is personalization. The digital age not only enables it but stimulates it. Plastic is a form factor that knows nothing about you, nor can it easily express your personal gifting sentiments. Digital gifting is radically different. The Home Depot eGifting program, for example, enables consumers to upload not only photos but can now also capture live video on its digital gift cards.
Mobile apps are proliferating to support creative and new forms of retail promotion and value. Digital forms of stored value offer new experiences and opportunities never before possible with plastic. Three examples illustrate how versatile and pervasive the post-plastic era is becoming. These include:
- Starbucks Foursquare checkin: To celebrate its 40th anniversary, Starbucks gave the first 600 customers to “check in” an instantly redeemable mobile gift card.
- IntoNow: This social TV companion app partnered with Pepsi to give users instant digital gift cards for watching certain TV ads.
- Chase GiftShelf: Chase’s iPhone app lets you redeem credit card points on the go for digital gift cards at Gap, Chili’s, Papa John’s, The Container Store and a dozen other retailers.
These developments provide only a glimpse of what is possible in the post-plastic card era. Digital gifting and payments are creating new possibilities of “instancy.” If you forgot to bring your nephew a present, you can order him a digital gift card for his birthday as you’re walking toward his house. Or you can send your niece one via Facebook and personalize it with a photo or short video telling her how proud you are of her.
It is no longer a question of “if” but rather of “how fast.” Market interest is clearly there. Starbucks’ new mobile card, for example, has already generated more than 3 million transactions, proving that mobile payments using digitally stored value can work.
Skeptics remain, but they’re of the same mind as those who said people would never prefer credit cards over cash. People, however, love convenience and immediacy. In 1975, one of the major credit card companies made a name for itself with the tagline “Don’t leave home without it.” Today, you will never have to leave home without a means of paying digitally. Those in the market who support that transition will be the winners.