As another holiday season has come and gone, we continue to see shopping evolve as e- and m-commerce broaden the purchase channels for consumers and new payment technologies create versatility for transaction formats. The growing adoption of these new ways to shop suggests two things about consumers: options continue to be key and flexibility in payment method is a valuable convenience. As a result, the gift card – an ever-popular choice of present – is changing with the times as well.
Initially, the concept of digital or ‘virtual’ gift cards – delivered to recipients through secure email – emerged as one of the more remarkable innovations of the prepaid industry in recent years. But these cards have vastly been ‘closed-loop’ thus far – remaining specific to the respective retailer selling them, as well as that retailer’s payment process. Digital open-loop gift cards do not share these limitations. They hold the true potential of gift cards for today’s consumer, unlocking previously unseen convenience – and in the process, tapping into various applications for end-users as well as revenue opportunities for prepaid program managers and financial institutions.
The Road to Digital Open-Loop
While closed-loop digital gift cards allowed consumers to transcend physical cards, digital open-loop gift cards allow them to transcend particular stores or brands. They involve a payment network like Visa®, MasterCard®, American Express® or Discover® and can be used anywhere – a highly valuable function for consumers who today have access to all the choices in the world through their computer or mobile device.
Although the concept may seem easy and obvious, there are reasons why the adoption of digital open-loop gift cards hadn’t taken off earlier. For one, digital cards used to only be redeemable for online and over-the-phone purchases – strictly card-not-present transactions. Rules around open-loop payments at the point of sale made it so that digital open-loop gift cards were extremely difficult to use for actual in-store purchases. Rather than providing an added convenience to shopping, digital open-loop gift cards didn’t allow consumers to make purchases the conventional way. And even with card-not-present transactions, a digital gift card was unusable if the cost of a purchase was greater than the available balance on the card. For these reasons, prepaid program managers and financial institutions shied away from digital open-loop gift cards, seeing more complications and limitations than ROI for their businesses. But recent developments have broken down these barriers, making digital open-loop gift cards an attractive product for consumers, and by extension, unlocking remarkable value for issuers.
Virtual (Card) Reality
Today, the doors are opening quickly for virtual, digital open-loop gift cards to see greater adoption among consumers. The traction they are predicted to have can be explained by the rising popularity of Apple Pay®, Samsung Pay® and Android Pay™, in addition to the latest prepaid digital gift cards being able to connect with such mobile payment methods. These advances have made it so consumers have the ability to make the physical, in-store purchases they previously couldn’t. Consumers now receive their prepaid digital gift cards via secure email and can deposit the funds into their mobile payment accounts, to use for purchases.
Combined with the fact that brick-and-mortar retailers are accepting mobile payments at increasing rates, both the innovation and application of digital gift cards are beginning to click. Furthermore, in-store retailers are no strangers to split-tender transactions – where two forms of payment are used for a purchase, such as a gift card and cash. With more retailers accepting mobile payments, customers are now also able to use digital open-loop gift cards in split-tender transactions, creating another avenue of payment convenience that was previously not possible.
No longer restrained by technical limitations, digital open-loop gift cards not only match but in some ways exceed the payment versatility of physical cards – and as consumers increasingly use their mobile phones for a multitude of functions, the potential is promising.
Ripples of Convenience
The convenience of digital open-loop gift cards trickles upwards from end-users – enabling new efficiencies for conventional applications of gift cards. For example, the digital nature of such cards can help employers skip a step when they wish to reward employees. No longer having to physically purchase gift cards, bulk order them online or manually distribute them, employers can directly issue digital open-loop gift cards instead. Taking digital open-loop gifting a step further, employers can conveniently automate the process – setting employee goals or objectives and having cards delivered the moment they are achieved.
For consumer-facing companies that offer rewards to those who switch to them from a competitor, the days of enticing consumers with mail-in rebate forms or free gift card forms can be put behind them. Digital open-loop gift cards enable such companies to deliver rewards instantly, incentivizing prospects to act quicker and become new customers, thanks to the immediacy of the promised gift.
Financial institutions have traditionally required customers to visit a physical branch to buy gift cards. Tapping into digital open-loop gifting offerings for their mobile banking apps could help their customers seamlessly purchase prepaid digital gift cards directly from their phones. Such added convenience could translate into greater revenues generated by a financial institution’s gift card program.
Beyond their various applications, digital open-loop gift cards can also take on additional features, further enhancing their usage potential. Aspects such as customization, card design and personalization are not simply reserved for physical cards. Prepaid program managers and financial institutions can leverage solutions that offer customers the ability to create and design their own digital open-loop gift cards all the same – capitalizing on both mobile payment trends as well as consumer preference for personalization, a particularly attractive feature when it comes to gifting. Taking advantage of customization capabilities for digital open-loop gifting can help organizations extend top-of-wallet status into top-of-mobile-wallet status, and continue reaping the benefits.
As reflected in these examples, the core value of digital open-loop gift cards is in both the unparalleled consumer convenience it creates and the way that convenience extends above everyday consumers to deliver benefits at an organizational level. The power of choice and flexibility in payment goes a long way for consumers, who are increasingly navigating their daily lives digitally or through a mobile device. As their behaviors and decision-making evolve in the process, the likelihood of digital open-loop gifting becoming commonplace in their approach to gift cards is great. For prepaid program managers and financial institutions, the time is now to explore how they can proactively introduce digital open-loop gift card offerings – in preparation for a wave of consumer demand that seems inevitable