Banks in Europe are selling digital gift cards alongside traditional bank accounts, allowing online consumers to buy credit for Facebook, Nintendo, Spotify and other content providers.
Prepaid gift card provider Blackhawk Network's German unit, Retailo GmbH, late last year began providing digital cards through Deutsche Kreditbank AG. About the same time, e-payments provider Euronet Worldwide began working with Flipkart, India's e-commerce marketplace, to provide a similar offering to banks in India.
"All of our bank partners are in Europe and Asia at this time, as they are much more aggressive in making digital products available to their customers," said Kevin Caponecchi, executive vice president of the Epay Worldwide division of Euronet. "We got into the bank business because we already had relationships with the banks and we had this global content, and asked banks if they were interested in distributing that content."
The company uses its connections with merchants through its money transferring business to distribute digital products such as gift cards from iTunes, Google Play, Facebook, Xbox, PlayStation and Amazon.com. Bank customers purchase digital gift codes through online or mobile banking and receive the codes through email or text messages. Euronet processes the transactions initiated through the codes.
Banks make digital content available as a way to nudge customers to their online and mobile banking platforms, and to demonstrate the security of making purchases through those channels, Caponecchi said.
Digital gift cards are finding many new uses in e-commerce and in-person sales. For example, Gyft, a unit of First Data, offers digital gift cards as a way for consumers to indirectly use Bitcoin to shop at mainstream merchants. Consumers use Bitcoin to buy the digital cards, then use the digital cards (which can also be purchased with credit cards and PayPal) at retailers such as Burger King, Lowes, American Eagle and Nike.
A gift card is also the product underlying the successful Starbucks mobile payment app. Starbucks patrons use a Starbucks stored-value account to fund purchases made through the app, and the company considers its gift cards to be among the most successful products sold during the holiday season. In 2013's holiday season, one in eight Americans received a Starbucks gift card, and the cards had $1.4 billion in loads during the company's fiscal first quarter (which overlaps the holiday season).
As banks begin selling digital cards, it is important to know ahead of time how they will be used, Caponecchi said. For example, consumers in Europe tend to purchase gift cards for their own use, and consumers in the U.S. purchase them to give to others.
However, there are exceptions. Many video gamers use digital or plastic gift cards to purchase downloadable games as an alternative to typing in a credit or debit card number on their Xbox, PlayStation or Nintendo consoles.
Digital content also represents a way for banks to expand upon their reward and loyalty programs, while targeting younger consumers with the digital content they already buy elsewhere, said Angela Angelovska-Wilson, a financial services and banking lawyer at Reed Smith LLP.
"E-gift cards and the ability to send and spend immediately is something that represents huge potential for both social media as well as banks and retailers," Angelovska-Wilson said. "That's what consumers want and it's a good way to monetize things."
Banks will benefit by offering digital gift cards, which are a "logical extension" of their existing rewards programs, Angelovska-Wilson said.
Blackhawk Network could not provide an interview prior to deadline.