Mercator Advisory Group recently published a report from its Prepaid Advisory Service titled Retail Gift Card Trends in the United States: 2014 in Review, which contains an estimate of the total dollars loaded onto retailer-issued cards. We also asked retailers about the distribution channels they used for selling cards and the form factors of their cards.
While the retailers supplied data that helped us make market size estimates, the diversity of the market makes it clear that form factors are more challenging to measure. When we surveyed retailers, we asked them about the percentage of loads that were placed on plastic cards, virtual cards, and mobile cards. While this gives a clue to the form factors for initial loads, it does not tell us how many mobile, virtual, and plastic cards are out there.
Mercator Advisory Group defines physical cards as “plastic” since most of them are. But the term “physical” refers to cards that are carried around and redeemed at a point of sale as cards. “Virtual” cards are those that are sent by email and that might be accessed via computer or mobile device. “Mobile” cards are those that require a smartphone or other mobile device to redeem.
Now, some have asked why make a distinction between the digital card types. The importance of this distinction will become more apparent in the future as different capabilities are added to the cards. Retailers and technologists have talked about adding spiffs such as location-based offers, in-store messaging via beacons, and card bonuses linked to the time of day. These can only be accomplished with a mobile device. So while the distinction seems academic at the moment, looking ahead, the difference between a virtual and mobile card is likely to become more significant.
Looking at the market today, there is some blending of the card types as consumers find new ways to store and redeem their cards. For example, companies like First Data’s Gyft allow a cardholder to store and redeem a card from a mobile phone. Storing the card in the app does not convey extra functionality at the time of redemption, but it does make it possible to regift a card that was formerly plastic via electronic channels. Gift card resale sites also enable the conversion of plastic cards into virtual cards.
What this means is that while retailers, on average, report that more than 95% of their card loads are placed onto plastic cards, it is not clear that those loads remain there. In the coming years, retailers will need to adapt to fluid form factors. This can present challenges or opportunities, depending on the flexibility and imagination of the retailers. As retailers work to develop digital strategies, they should consider how they might serve both the digital natives – who would want their cards stored on their phones – and their grandmothers – who would prefer to give physical gifts. Both offer opportunities for reaching customers, but making the most of them requires thinking across the form factor spectrum.