JPMorgan Chase & Co. is using CashStar Inc.’s digital gifting and incentives platform to enable credit cardholders to use rewards points to buy merchants’ proprietary gift cards through an Apple Inc. iPhone application, the companies announced Dec. 8.

CashStar in August first revealed it was developing a mobile app for what at the time was an unnamed financial institution (see story). The Portland, Maine-based company also is discussing potential partnerships with other financial institutions that may launch the app, according to CEO David Stone.

Users download the free Chase GiftShelf application onto their iPhone and sign in using their Chase online banking credentials. They then may pay for the gift card using their Chase Ultimate Rewards points or with a Chase credit card. Users receive the card’s digital image with a barcode that clerks would scan at the point of sale to redeem the value in the card account.

Cardholders also may redeem the gift card value online by entering the card’s numeric code, and they may use the app to send the digital card image to someone else via text message or e-mail, along with an optional personalized message.

Chase will continue its GiftShelf pilot through the first two quarters of 2011, by which time the bank should be able to add more retailers to the redemption choices, Stone says. Some 18 retailers and restaurants, including The Home Depot Inc. and Papa John’s Pizza, are participating in the initial phase. CashStar has 88 merchant partners, Stone adds.

CashStar declined to reveal how it and Chase generate revenue from the gift card initiative.

The app “enables retailers to extend their digital gift card offering to consumers with a very easy to use mobile option,” Stone says.

CashStar eventually plans to release an app for Google Inc. Android-powered smart phones.

The app, which CashStar calls the first of its kind, illustrates how smart phones are changing the gifting market, says Ben Jackson, senior analyst at Mercator Advisory Group. “Mobile technology is making it possible to do things companies haven’t tried before,” he says.

Jackson believes such an app is a “good deal” for everyone involved. The app will help Chase drive its customers to use their credit cards more to grow volume for its card program. Merchants will get more traffic to their physical and online locations with the hope consumers spend more than the gift card amount. And consumers likely will view the app as an easy redemption method and will not be left wondering what their points are worth, Jackson says

“All of that assumes that the consumer likes this option and is spending enough to make the margins worthwhile for the retailer,” he says.

No independent industry data exist to support the notion that offerings of “virtual” gift cards are on the rise, but internal research from prepaid companies suggests consumers more often are opting for the product’s convenience instead of plastic, observers say.

Indeed, e-gifting should contribute some $3 billion in prepaid load volume by 2012, TowerGroup recently estimated based on anecdotal evidence (see story).

Stone believes mobile smart-phone apps will help change gifting’s future. “As adoption of mobile applications increase, we’re going to see a lot more mobile innovation in this gifting and rewards space,” he says.

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