The Pros and Cons of Digital Gift Cards
The gift card industry continues to thrive. In 2019, Americans loaded $95 billion onto gift cards. But there is a specific sector of this market that is growing faster than the rest – digital gift cards.
A recent report from Research and Markets says that “digital gift cards will continue to grow and eventually surpass physical gift cards.” However, these cards account for as much as $950 million in fraud losses each year. Here are some of the pros and cons of digital gift cards to assess the long-term value they provide.
The Pros of Digital Gift Cards
One of the driving factors behind digital gift cards’ surging popularity is the fact that these cards are better for the environment. Most physical gift cards are designed to be single-use, which leads to a tremendous amount of plastic discarded every year. It takes approximately 9,000 tons of plastic to produce the volume of gift cards used in the United States, and the bulk of that ends up in landfills.
Another advantage to digital gift cards is the fact that they can be loaded into digital wallets, such as Apple Pay or Google Pay. The card data is easy to access for a purchase, but it doesn’t take up physical space in a wallet.
The “digital” nature of these cards also means convenience and the fact that people are more likely to use the entire card balance. Americans leave roughly $3 billion in unspent money on gift cards each year, mostly because they do not want to hold onto a card with a low remaining balance. If the card only has $1 left on it, the cardholder may toss the card to make room in a wallet. With digital gift cards, the balance is available without the bulk.
The Cons of Digital Gift Cards
While there are many benefits of digital gift cards, there are also some drawbacks. These cards are subject to fraud, just like physical cards. The card data may be used for card-not-present fraud, where a purchase is made without a physical card present. Research and Markets says, “Gift card fraud is between 1% and 4% of revenue. Fraud is prevalent for both physical and digital gift cards but is higher for digital gift cards.”
Assuming the card is to be given as a “gift,” a digital gift card loses some appeal. There is no tangible item to hand to the recipient, thus making the gesture feel less significant. Nevertheless, digital gift cards do allow long-distance friends to send each other gifts in real-time. Rather than mailing a physical card, they can email a digital one as soon as it is purchased.
Will Digital Gift Cards Continue to Grow?
All signs point to strong growth in the digital market. Several years ago, InComm noted a surge in digital gift cards that aligned with increased adoption of mobile wallets. Physical gift cards will still have a role in the economy for years to come, but their digital counterparts are projected to take over the market with time.