Virtual Reality

Digital versions are steadily increasing their share of the gift card market. Could they breathe new life into mobile wallets?

If the standard knock on gift cards is that they’re too easy, too quick, too thoughtless with respect to the recipient, then the same could go double for digital cards. At least plastic cards require a bit of effort. With digital, you just order one up and email it instantly—perfect for that certain someone who slipped your mind til 11:59 p.m. on Christmas Eve.

But if that’s the consumer perception, it doesn’t seem to be hurting gift card sales. And if it was especially dragging down digital sales, that’s no longer the case. U.S. consumers on average bought more than six of each type of gift card this year, up from 5.9 physical and 4 digital cards in 2016, according to the latest survey results from First Data Corp. To be sure, total dollars loaded are still weighted heavily toward plastic, though digital is growing fast.

Convenience, the ability to buy a card and send it to someone within seconds, has much to do with that. So does the wider availability of mobile wallets. And so does the hefty share of people who are simply buying the cards for themselves.

“There’s a shift to virtual,” declares Tim Sloane, vice president for payments innovation at Mercator Advisory Group, a Maynard, Mass.-based payments consultancy. One big thing merchants need to be thinking about, he adds, is “what do I do to not lose out, to have a solution for those who want a virtual card.”

One beneficiary of this trend could be mobile wallets, which consumers have not quite embraced as warmly as many experts predicted a few years ago. Some digital cards are already tailored expressly for redemption at the point of sale via a mobile device. But the possibilities go well beyond that.

“There’s a ton of gift cards that go unused every year. If you can store those cards in a mobile wallet, then there are many ways to interact with that customer,” notes Gerry Gilbert, head of product for merchant solutions at CashStar Inc., a gift card technology company that prepaid card powerhouse Blackhawk Network Holdings Inc. snapped up in August for $175 million in cash.

An example Gilbert cites: With a gift card code stored in it, the mobile wallet can aler…