Magazine Article | January 1, 2003

Gift Cards Extend Their Reach

Source: Innovative Retail Technologies

Emerging technologies and consumer demand are two reasons why gift and spending card programs are integral to retailers' offerings.

Integrated Solutions For Retailers, January 2003

New technologies, merchant applications, and consumer needs are emerging at lightning speed in the gift and spending card industry. Technological advances are creating opportunities for merchants to enhance customer service, provide superior product offerings, capture more revenue and market share, and take a leadership role in the ongoing charge to stay ahead of the competition.

While many merchants are just being introduced to the benefits of a comprehensive gift card program, others are taking advantage of the knowledge, experience, and technological breakthroughs available in today's industry. Most notable among them is the evolution of the gift card to a reloadable spending card. Spending cards are intended for "multiple visit" card users or receivers, and are typically used as convenience or budgeting tools. Because of the operational efficiencies afforded retailers, reloadable cards are extremely popular and effective in the right environments (e.g. coffee shops, gas stations, and convenience stores).

Examining Internet Solutions
Having demonstrated steady growth in the past year, Internet solutions allow merchants to create a blend of physical and virtual gift and spending card programs. These programs provide a comprehensive card experience, regardless of how the consumer chooses to interact with the merchant (i.e. retail location, online, or a combination of both). And, integrating the virtual and physical aspects of a card program does not require changes to POS systems or store operations.

Internet programs are designed to work with a wide range of Internet hardware and software combinations and use a personal identification number (PIN) to authorize Internet-based transactions. In addition, Internet traffic is handled over a secure connection, protecting merchants as well as their consumers. There are three widely accepted Internet models:

Virtual Only - All cards are virtual (no plastic associated with the account number) and can only be utilized online.

Physical To Virtual - Physical cards purchased at a retail location can be used online and in a retail location.

Virtual To Physical - Virtual cards purchased online can be linked to a physical card with a PIN that is usable at a retail location and online.

Strategic Alliances Increase Benefits
Many merchants are working together in what the industry refers to as a cross-consortium relationship or alliance. Driven by technological advancements, these types of arrangements have been welcomed by consumers as a time-saving, convenient way to purchase and use gift and spending cards. Also, the marketing opportunities help introduce and expand merchant brand recognition with consumers.

In terms of merchant alliances, two types of programs are emerging in the industry:

Seller Programs - Merchants offer to sell other, non-competing retailers' gift cards to increase foot traffic and customer service options, and increase the distribution channel for the card retailer.

Multi-Use Card Programs - Gift cards are sold and redeemed at two or more merchant locations (e.g. dinner and a movie card combo).

Gift Cards With International Flavor
Having established a strong presence and exposure in the United States, many top merchants are applying their knowledge and experience to growth in international commerce.

These programs consist of two primary offerings:

In-Country Gift And Spending Card Programs - These programs are designed for exclusive use in one country, and card activity is restricted to a specific country or region.

International Gift And Spending Card Programs - International gift and spending card (IGSC) programs provide real-time currency conversion if a card is used outside of the country in which it was originally activated. If a card purchased in the United States is presented for redemption in France, the IGSC system will convert the transaction currency from dollars to euros. This conversion occurs in real time and is reported back to the merchant's POS during the transaction process.

As the creativity and technology for gift cards continue to evolve, merchants and consumers alike are sure to enjoy the benefits as the industry marches ahead.

Are you and your company prepared to lead the way?