‘Digital Age Is Here’ For Virtual Retail Gift Cards, Platform Provider Says

ORLANDO, Fla. — As the infrastructure to support digital gifting continues to increase, why does plastic still heavily dominate the industry?

David Stone, CEO of virtual gift card provider CashStar Inc., posed this question to attendees here March 8 at the Prepaid Card Expo during a panel discussion about merchants adding a digital-gifting option to compliment existing plastic prepaid cards.

Digital gifting, in which gift cards use numbers and barcodes instead of plastic, increasingly is becoming a vital offering for merchants as consumers continue to embrace the concept of instant access via smartphones and social networking websites, Stone noted.

“The consensus [among consumers and some merchants] is that the digital age is here,” he said. “Consumers are eager for the immediacy and convenience that comes with” digital gifting.

In the past two years, at least three companies have moved to shape the market’s digital-gifting options.

JPMorgan Chase & Co. is using CashStar Inc.’s platform to enable credit cardholders to use rewards points to buy merchants’ proprietary gift cards through an Apple Inc. iPhone application (see story).  CashStar also announced here this week a mobile offering that enables consumers to deliver virtual gift cards to a recipient’s smartphone through a text message or e-mail. Recipients then may view the card on the phone’s screen.

Giftango Corp. provides virtual gift cards for retailers such as Amazon.com Inc., J.C. Penney Co. Inc. and Nike Inc. In September, it released a software-development kit that enables mobile-phone application companies to develop gift card products consumers may use at the point of sale or redeem online (see story).

First Data Corp. offers an eGift Social system for sending virtual gift cards online through Facebook (see story).

Merchants that offer a digital-gifting option contend the technology provides an opportunity to connect with customers who prefer interaction on their terms.

“You have to be where your customers are,” Michael Homiak, director of incentives for Home Depot, told conference attendees during a panel discussion. “Someone else will provide the experience if you aren’t. Consumers will find a viable alternative somewhere else.”

Home Depot, a CashStar partner, recently enabled consumers to add a short video clip to virtual cards. The option is intended to give the product a more personal feel, which has been a knock against gift cards over the years.

“As the industry has grown, we’ve tried to overcome that [impersonal perception] with personalization” options, Homiak said.

Panel participants warned attendees to assess the digital options available before taking a plunge into the pool.

Bertrand Sosa, who co-founded NetSpend Corp., said the hype surrounding virtual gifting is legitimate and based on potential and promise.

“When you look at what the big players are doing, you have to look at the hype and look at what makes sense for your customer base,” Sosa said. “It needs to compliment what you’re already doing. It needs to be a strategy to cut all through the hype.”

Merchants offering virtual cards claim consumers are adopting them in significant numbers, especially during the holiday season. No independent industry data exist to support that notion, but internal research from prepaid companies suggests consumers more often are opting for the product’s convenience instead of the form factor, observers say.

Indeed, e-gifting should contribute some $3 billion in prepaid load volume by 2012, TowerGroup recently estimated based on anecdotal evidence (see story).

Consumers are ready to adopt products that make sense, Sosa said. “The conditions are there and consumers are ready to adopt,” he added.

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