The Gift Card Sector Comes of Age. Part 2 of 5: The Business, Social and Technology Trends Driving E-Gift Card Adoption, Innovation and Investment

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In Part One of our look at the gift card sector, we provided an overview of the accelerated activity characterizing the sector over the past 4 years. Now in Part Two, we will examine some of the drivers behind the segment’s growth.

The Investment Perspective

FinTech in general is hot. And Square’s meteoric rise, led by Twitter CEO Jack Dorsey, made retail POS – and payments in general — sexy in that “ripe for innovation” kind of way. As a segment within the FinTech category that correlates closely with the growth of mobile payment technologies, e-gift cards are understandably an area of interest. And an area that is not yet saturated or highly visible (relative to say, the post-Square POS me-too frenzy), enabling even smaller funds to get in on a good deal.

Mobile Device and App Proliferation

The ubiquity of smart phones and the emerging use of mobile wallets makes e-gift card transactions a logical next step in ecommerce adoption for early adopter/tech savvy consumers. And for the underbanked, who are increasingly mobilized, e-gift apps can be the first and/or are the only step available to them for participating in the electronic purchase of goods and services.

Consumer Migration To All Things Digital

U.S. consumers are clearly weary of the physical store. This season’s unprecedented boycott of in-store Black Friday by some major retailers like REI and consumers’ growing weariness with, and wariness of the physical retail store experience this year reached an inflection point, morphing from mere disenchantment to angry action, with growing support for the consumer boycotting of Black Friday.

Rather than abandoning the retailers, consumers continued to engage with their favored brands online, with REI experiencing a 10-26% rise in online sales during the Thanksgiving holiday, according to digital analytics company SimilarWeb. Other retailers saw even more dramatic increases in online sales, with GameStop and Staples experiencing a one-day rise of 120%+, PetSmart a rise of 69% and Nordstrom and Pier1 both reporting a 54% one-day rise in web traffic. Overall, Black Friday in-store sales dropped by more than $1 billion – or 10% from previous year holiday sales while online sales increased. In fact, a National Retail Federation (NRF) survey found that indeed more people shopped online (103 million) than at the store (102 million) during the Thanksgiving/Black Friday period.

Gift cards are playing a part in this migration online, with consumer attitudes about gift cards changing as the sector provides more value-added features that increase the level of both physical and e-gift card personalization available to consumers, and that provide the convenience of allowing users to add value, store and transact with the cards anytime, anywhere. Moreover, marketplaces like Raise, Cardpool and Giftcards.com are enabling people to buy gift cards online for a discount, making gift cards even more appealing in some cases than the purchase of a discounted physical good as you could theoretically double dip – use the full value of a discounted card to buy a wanted item when it goes on sale.

At the same time, in both the U.S. and Canada, e-gift cards are not only viewed as acceptable, but increasingly as the preferred way to show gift appreciation.

In the next Part Three of this series about the gift card sector, we’ll look at how the growth of gift card business model and technology innovation is not just about the convenience of the pre-paid card, but about a larger trend towards the de-centralization of consumer finances, driven by such factors as millennial distrust of the bank as the sole institution for housing one’s money, and the broadening ranks of the under-banked.

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