Mobile Gift Cards: Major Push On for the ‘Cooler’ Gift Card

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In a recent survey, roughly 15% of U.S. retailers offer digital gift cards that are truly mobile—meaning they can be used immediately for a purchase via smartphone. A major growth spurt for mobile gift cards seems to be in the works. In the same survey, 61% of retailers said they plan on offering such cards in the next three years.

In the near future, it may be time to revisit the term “gift card.” Why? Because increasingly, there won’t be an actual physical card involved. The term “credit” or “gift credit” seems more appropriate when the gift is merely a code representing a dollar value amount at a retail store, sent via text message, Facebook, or e-mail.

For now at least, card or no card, “gift card” remains. And consumers are likely to hear more and more messages similar to one published at CreditCards.com last fall, in which the mobile gift card is presented as the “cooler” gift card.

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In the post, Doug Schneider, president and CEO of Transaction Wireless, a San Diego-based firm that helps retailers develop digital gift cards, explained how he’d recently purchased a mobile card for his son:

“On his birthday, he’s walking down the street in New York and presto — there’s the gift card that shows up on his mobile phone with the personalized text message from me,” says Schneider.

“He’s actually walking down the street and talking to me, and he walks into American Eagle and he’s able to use it immediately. Then he calls me back to say, ‘Dad, this actually works.’”

For now, however, the technology only works in a fairly limited fashion. In a new study from Transaction Wireless and the Aberdeen Group, just 15% of retailers surveyed were actually capable of accepting such a truly mobile transaction, in which digital gift cards could be redeemed via smartphone, in a store or pretty much anywhere. At the same time, it seems like this scenario will be far more common in the near future, as 61% of retailers surveyed indicated plans to offer mobile gift cards within the next three years.

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Consumers may embrace mobile gift cards not only because they’re “cool,” but because they’re more convenient. If you own a smartphone, you carry it with you virtually everywhere you go, including impromptu trips to the mall. Traditional plastic gift cards, by contrast, can easily be left at home, or left in a pocketbook and forgotten about for months. In theory, it should be easier to use a mobile gift card than one that’s a physical piece or plastic or one that’s merely digital (redeemable via a website for online purchase, but not via smartphone).

Retailers like digital gift cards because they allow customers to purchase gifts and send them instantly, 24/7. It’s the perfect solution for procrastinators. With digital cards, the costs of producing actual plastic cards, as well as marketing and displaying them in stores is eliminated as well.

But is giving a mobile gift card, or any gift card, really a good use of money? Much has been written about how using a gift card doesn’t really feel like spending money. Apparently, tons of consumers have physical gift cards sitting around the house, unused for months if not years. In fact, more than $40 billion worth of gift cards has gone unredeemed in the U.S. over the past half-decade. In light of such data, it’s understandable that some shoppers want to spend their gift cards as soon as they can, even if they’re used to buy things that aren’t on anybody’s wish list—and even if the asking price is unreasonably high.

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One study indicated that shoppers using gift cards were 2.5 times more likely to pay full price than someone paying with cash. This is so for a couple of reasons. First, because a gift card sorta seems like found money: When using one, there is none of the usual pain, guilt, and anguish of paying cash out of pocket. Secondly, shoppers know that if they don’t use a gift card asap, there’s a good chance they’ll forget about it and the card will wind up collecting dust in some drawer. In this perspective, using a gift card right away makes total sense—even when the purchase is merchandise of dubious value, at an unnecessarily high price.

Digital gift cards may seem cool and convenient, but they can also be forgotten about or deleted as quickly and carelessly as an e-mail or text message. During last winter’s holiday shopping season, a press release encouraging the purchase of e-gift cards offered the following advice about their usage:

Use the eGift Card as soon as possible. It’s very easy to forget or misplace the information.

When the promoter of a gift is saying that it could pretty easily become useless, that’s not much of an endorsement.

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What we have, then, with the advent of the mobile gift card are several layers of detachment from the usual shopping experience. Spending with a mobile gift card is less tangible than spending with a physical gift card, which in turn is less tangible than spending with cash. Also, buying something with a smartphone—something most owners play games on—can feel a lot like a game. It’s certainly more fun than guiltily swiping one’s debit or credit card (yet again), let alone the very un-fun activity of parting with cash.

Retailers and manufacturers obviously want spending to seem like fun. The net result for consumers, though, is that when spending is fun and frivolous almost to the point of unconsciousness, a lot of money will be blown and not much value will be gotten.

Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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Jill Tooley
Jill Tooley

I'm interested to see how this develops! Gift cards via smartphone would be ideal for a consumer like me, but I wonder how the stores themselves would feel about it. If someone forgets about a gift card and never uses it, then the store doesn't lose anything. But if this initiative causes more people to use their gift cards, then that's a different story...

Virtual gift cards would be especially beneficial if they were anything like Groupons, because they allow buyers to check the balance in one glance. Physical gift cards are kind of a pain to verify!