Digital Gift Cards: A Catalyst For Mobile Payments

Over the past five years, digital gift cards have grown to become a popular choice for all gifting occasions — from birthdays and holidays to graduations, Valentine’s Day, and those “just because” moments. They are easy for consumers to purchase, personalize, send and redeem. Since they are delivered instantly via email and even text messages, gift givers can now literally wait until the last minute and still not miss a gift-worthy moment.

Retailers have embraced the digital gift card, leveraging it as another option for consumers and providing the marketing team with an additional tool to help inspire purchases. However, retailers that view digital gift cards simply as an extension of an existing program are shortsighted. As digital, mobile and social innovations continue to change the way consumers shop, retailers have a big opportunity to use the digital gift card more strategically: As a catalyst for mobile payments.


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The Way To Mobile Payments

Smartphone users already redeem coupons, look up product information and compare prices on their devices. A new report from Parks Associates confirms that they are also doing something that retailers can’t ignore: one-fifth of U.S. smartphone owners, or 40 million Americans, used a mobile wallet in 2013. And the fact that the number is expected to grow 183% to 113 million by 2017 makes it clear that using digital wallets for in-store payments is a natural extension of existing consumer behaviors.

And while financial institutions, credit card companies, mobile carriers and technology companies are fighting about who will eventually own the mobile wallet, there are success stories that illustrate how retailers and brands can benefit from consumers’ willingness to pay with their phones and the role that digital gift cards play as a catalyst for this change in behavior.

Take Starbucks, for example, which was one of the first companies to enable mobile payments. By integrating mobile payments and gift cards, Starbucks allows customers to mobilize and easily reload their plastic cards or purchase new digital gift cards. This has provided an easy way for consumers to pay for their purchases, redeem offers and earn and redeem rewards. This strategy is massively successful, with more than 10 million people now using the Starbucks mobile app. Today, mobile and gift card payments represent 30% of the company’s total U.S. payments.

A number of other brands are enabling their gifting programs to integrate with Passbook due to the fact that nearly one third of all eGift cards sent today are opened on a mobile device. Of those, nearly three quarters are on an iOS 6 or iOS 7 device running Passbook. Of those consumers presented with the option to add their gift card to Passbook in 2013, an average of 34% are doing so. Within certain sectors, such as beauty and electronics, that number is as high as 40%.

What are those tens of thousands of consumers with their eGift cards in Passbook doing every day? They are making mobile payments. Because consumers always have their phones with them, the retailers integrated with Passbook are seeing consumers spend their gift cards more quickly.

Shifting Mindsets From Tactics To Strategy

To be successful in using digital gift cards as catalysts to mobile payments, retailers need to shift their mindset and begin viewing gift cards as strategic tools in their marketing arsenal.

Some things to consider:

  • Digital gift cards as branded, promotional currency. More than just gifts, digital gift cards are effective tools for uniting offline and online worlds to drive customer acquisition, increase sales and frequency, and grow loyalty. In fact, for shoppers, gift cards are a form of currency themselves, along with loyalty points, coupons, credits and anything else shoppers can exchange with a retailer for its goods. Retailers that strategically leverage these forms of payment as branded currencies can actually influence purchase decisions and use them as a competitive advantage. With the rapid adoption of digital, mobile and social, retailers have a new opportunity to deliver this currency in a more convenient and effective way. Just look at Starbucks — its mobile and gift card payments account for 30% of its total U.S. payments and it sees almost $5 million in mobile payments per week. By continuing to implement innovative ways to use gift cards strategically — most recently via its Tweet-a-coffee initiative — these numbers are sure to increase.

  • Ease of use and convenience drive adoption. Since traditional wallets continue to work well for consumers at the point of sale, retailers need to provide customers with something that is easy and convenient to use in order to entice them to embrace mobile payments. Digital gift cards stored on a mobile device are the perfect solution. Mobile phones are always with consumers when they shop, whether it’s in a store, online or on the go. Plastic gift cards? Too often they’re left sitting in a drawer at home. Even if the plastic gift card gets in the wallet, it’s still easily forgotten. Passbook’s location-based engagement triggers alert consumers when they are near stores — which can help drive traffic and speed redemption of gift cards — two big pluses for retailers.  

  • A positive user experience breeds repeat behavior. What makes a consumer try something new? An incentive or reward for that behavior. If paying via mobile earns a $5 digital gift card toward a future purchase, it is likely to drive a consumer to action. This positive user experience is also likely to encourage the consumer to try the behavior again. If there continues to be a real value for the consumer, such as a consistently engaging mobile experience, the behavior will persist.

It’s clear that those retailers tying their eGift programs to mobile wallets are setting the pace when it comes to driving mobile payments adoption, but other retailers that adopt a strategic approach now can start to catch up and become leaders within their category. By thinking beyond gifts and eliminating traditional organizational silos to unite all stored value instruments together for an integrated customer experience, retailers can drive mobile payments, influence purchase decisions, and build more valuable and enduring relationships.

Ben Kaplan is President and CEO of CashStar. He brings 20 years of experience to CashStar in senior operations, marketing, and product roles at software, e-Commerce, loyalty marketing and payments companies. Most recently, he was Chief Operating Officer at Cartera Commerce, a leading provider of card-linked marketing solutions for merchants, banks, and loyalty programs. At Cartera, Kaplan oversaw sales, marketing, client services, engineering, professional services, and technical operations. Prior to Cartera, Kaplan was Vice President of Marketing for KNOVA Software and Vice President of Marketing for North Systems, directing marketing and product management at both companies. Earlier in his career, he held product marketing and product management positions at Broadbase and Commerce One.

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