As digital gift cards grow, Blackhawk seeks connections with traditional retail

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Gift cards will be the most-requested item this holiday season again, and for the first time, one in three U.S. consumers buying gift cards will opt for digital versions, opening new possibilities for merchants that are anxious to counter Amazon's influence and improve user experience for stored value.

With the rise of mobile commerce, digital gift card sales are increasing at about 5% annually and the lines are blurring between physical cards and electronic cards, opening the way for merchants to leverage them for more marketing and loyalty programs, according to Blackhawk Network, the U.S.’s largest gift card marketer.

Since major merchants are connecting in-store, online and mobile shopping channels, Blackhawk anticipates broader interoperability between physical and digital gift cards that could revolutionize retail loyalty programs.

“One of the most interesting areas we see growing is the ability to connect stored value in digital wallets with traditional retail sales, so that consumers eventually can earn points at one merchant and redeem them with another,” said Theresa McEndree, vice president of marketing, Blackhawk Network.

Opening up loyalty programs’ currency will be the next frontier, and digital gift card technology likely will play a key role in it, McEndree predicts. “Previously there were a lot of limitations to what gift cards could do, but retail stores increasingly can accept physical and digital gift cards online or at the point of sale, and consumer adoption of digital gift cards is rapidly expanding along with mobile commerce,” she said.

With about $3 trillion currently is stored in digital wallets—much of it in the form of stored value in points or cash back—broader interoperability between wallets and loyalty programs is almost inevitable, she said.

Though merchants are not yet swapping loyalty points with one another, this will likely happen eventually, some observers believe. There's also potential for merchants to use digital gift cards to compete with Amazon. Consumers are changing the way they use gift cards, embracing self-gifting and other uses amenable to omnichannel shopping and payments.

Writing for PaymentsSource, Chris Demetree, CEO of Lazlo 326, says electronic stored value allows merchants to improve the user experience by avoiding complicated registration and redemption.

“Retailers, restaurants and banks are steadily increasing their use of stored-value gift cards to deliver cash-back rewards because consumers prefer it. What consumers would like even more is the ability to use loyalty points wherever they want, and we think merchants will explore it,” McEndree said.

Blackhawk became the leader in digital gift cards two years ago when it purchased CashStar for $175 million. Since acquiring CashStar’s digital gift card platform in 2017, Blackhawk said the unit’s revenues have increased 40% as it’s linked its own massive gift card merchant base to CashStar’s operations.

To advance its connections to digital wallets, Blackhawk last year partnered with Ant Financial’s Alipay so Blackhawk’s network of retail partners could allow Chinese visitors using Alipay’s wallet to pay at traditional retailers in the U.S.

“With wallets like Alipay, we’re able to connect stores to our digital gift card platform so we can activate, settle and complete the transaction all within the wallet,” McEndree said.

Blackhawk also is in discussions with providers of cryptocurrency and blockchain technology as a possible direction for selling and managing gift cards, though so far it has not tested anything formally.

“We have a number of partners who are looking at ledger and blockchain, and we are excited to see where they go," she said.

It’s still relatively early in the development of interchangeable digital gift card and wallet platforms, but McEndree said Blackhawk—which supports more than 400 different e-commerce gift card programs for merchants targeting consumers and corporations delivering incentives, it’s confident its technology will play a key role helping to broker stored-value services among merchants.

“In the last five years, Blackhawk has purchased more than 27 different large and small companies that all play a part in advancing technology that will put us at the forefront of gifting and loyalty,” she said.

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