The payment processor TenderCard Inc. has agreed to let its independent sales organization partners sell a virtual gift card system developed by Giftango Corp.

The East Falmouth, Mass., company handles gift card transactions, and says that a growing number of consumers are using gift cards that can be purchased and used without plastic cards.

"We believe this a very likely avenue that the gift card industry is going down in the upcoming years," said Michael Petrone, a TenderCard spokesman.

According to Giftango's internal research, more than 70% of consumers choose to purchase virtual gift cards from merchants that offer them.

TenderCard has more than 1,000 ISO relationships, representing more than 50,000 small to midsize merchants. Sandy Sullivan, a support manager for TenderCard, said it is already working with some of these ISOs to implement the Giftango system in the next few weeks.

"This kind of product is going to work best for merchants that have a strong website presence" where they can promote the virtual cards, she said.

Consumers can purchase the closed-loop virtual cards at participating merchants' websites. The account details are sent to the recipient by e-mail or text message, and people can redeem the funds at stores with their phones or by printing the account data.

Merchants can initiate a gift card transaction by entering the account number at the point of sale or by scanning a bar code that is included with the card details.

Mike Fletcher, Giftango's chief marketing officer, said that some retailers may charge a fee, likely about $1.50, for the virtual cards, though most do not.

Merchants with an image scanner attached to their point of sale systems can read the bar codes displayed on a smart phone. "We make sure the card can be displayed properly" on all smart phone platforms, Fletcher said.

Though most people print the virtual cards now, Giftango expects more people to use the phone option. Consumers generally use the cards once, but they can be reloaded, Fletcher said, and the majority of merchants do not charge a reload fee.

Certain merchant categories such as coffee shops would benefit from card reloads, and consumers would want to use the card on a mobile phone because of the convenience, Fletcher said.

Giftango is in the process of putting more emphasis on the mobile aspect because it believes that is the best delivery method, "but we still need to deliver a solid printed version."

Founded in 2005, Giftango, of Portland, Ore., develops software for the virtual gift card system that a card processor integrates with its system. Under the TenderCard deal, TenderCard's system holds the account funds. "What we do is add power to [TenderCard's] existing gift card program," Fletcher said. "All we are doing is delivering the gift card number in a different way."

Using virtual gifts could save merchants from $2 to $4 per card based on the expenses associated with a plastic card. Those costs include the expense of a plastic card (approximately 35 cents), shipping and employee time, Fletcher said.

Giftango has 20 "large" merchants using its virtual gift card system, but Fletcher would not name them. Some of those include relationships that merchant processors such as Chase Paymentech Solutions LLC forged with their customers.

Significant midsize merchants using the Giftango system include the Portland, Ore., hotel chain Shilo Inns and Andy's Frozen Custard of Springfield, Mo.

Other companies offer virtual gift cards.

In December, Blackhawk Network announced it would sell virtual gift cards from Bass Pro Shops, Sears Holding Corp. and J.C. Penney Co.

CashStar Inc. in early 2009 began providing a virtual gift card system to Home Depot Inc. and Papa John's Pizza.

Target Corp. in February introduced a gift card management application that lets customers manage their cards with smart phones, and make purchases with bar codes displayed on the phones.

Starbucks Corp. began testing a similar service in September, and recently expanded it to include all of its stores located within Target stores.