The digital gift card is one of the rare examples in the payments market where more options may not necessarily be the best thing for consumers.
Many retailers have their own digital gift cards, offering huge flexibility in terms of card design and funding amount, but still limiting recipients to spending it at a single retailer or chain.
InComm' digital open loop prepaid card, designed be used as part of incentive or loyalty programs, aims to break down these digital silos while also breaking away from InComm's focus on closed-loop cards.
Though it is a single card, rather than a range of options, the open-loop product "broadens the spectrum of options for consumers and it also opens doors in some other areas where you have unbanked consumers that may not have a credit card," said Mike Fletcher general manager of InComm Digital Solutions.
InComm's gradual move to open-loop cards began with a plastic product, and digital is a natural progression.
The company partnered with Seamless in 2014 to place stored value cards in mobile wallets. InComm is also one of the technology companies powering Rogers Communications' mobile wallet initiative in Canada. In December, InComm began selling gift cards on an eBay storefront called Cardency, offering cards for Olive Garden, Bass Pro Shops, Kmart and AMC Theatres.
InComm for the past two two years has also offered digital gift cards as a way to set parameters on a marketing program by pegging an offer to a certain timeframe or location.
InComm has about 200 clients for its rewards programs, which includes a mix of plastic and digital gift cards, in which recipients generally receive a notice of a gift card and can take action in an app. The new open loop digital option fits the common use case of a manager rewarding employees with gift cards—the more flexible in terms of how these cards can be used, the better, Fletcher said.
"We're seeing a lot of demand from folks that want to use digital cards for rewards," Fletcher said. "In many cases they already use physical open loop cards but they want to provide the ability redeem faster. Digital gifting helps with speed of delivery."
Companies in the past have been reluctant to offer digital open loop cards because of challenges in managing inventory, reporting and reconciliation, Fletcher said. InComm has addressed these concerns by adding its digital open loop products to a platform that's designed for fulfillment and managing stored value in a business-to-business environment, he said.
The virtual gift cards are designed for e-commerce, though InComm anticipates enabling in-store usage soon.
InComm is selling into an expanding market for open loop prepaid gift cards. Twenty-seven percent of merchants sell third party open loop gift cards presently, and 11% plan to add the option in the next year, according to Aite Group, which also reports 22% offer branded open loop gift cards, with 11% planning to make that addition.
About a third of merchants are currently engaged in a virtual prepaid gift card strategy, with another 44% saying it's a top priority, according to Aite. Merchants are also showing an interest in supporting virtual prepaid card sales through a virtual gift card mall—38% indicate they do this now, according to Aite.
"As we see more 'digital natives' in all age groups, we'll see more folks that are very happy to receive a number in an email and not have to carry a piece of plastic around with them," said Julie Conroy, a research director at Aite.