Supporting gift-giving via gift cards has long been a catalyst for growth in the traditional retail sector, enabling consumers to spend more than they normally would with one store. 

Digital gift cards are bringing the same benefits to the e-commerce industry, opening a new revenue stream for vendors and improving the options available to consumers.

Now the digital gift card sector is overcoming the cost-of-living crisis and undergoing its own expansion, with the launch of category-specific offers such as the UK's vegan gift card.

To delve further into this growing revenue channel, Retail Insight Network of GlobalData spoke to Günther Vogelpoel, CEO of digital gift card specialist Recharge.

Digital gift cards and consumer loyalty

Vogelpoel explains that retailers are utilising digital gift cards to boost consumption across a wide range of demographics, incentivising budget-conscious consumers, privacy-concerned consumers, corporate clients and more.

"Digital gift cards enable retailers to launch incentive programmes, rewarding consumers for purchases or return visits. Giving back to consumers is a great tool for building customer loyalty, encouraging customers to routinely engage with the retailer."

Innovation within the "lucrative" gift-giving market is driven by providers enabling consumers to personalise digital gift cards to enhance the giving experience, says Vogelpoel.

This loyalty is then boosted through the convenience of purchasing and sending gift cards instantly and from anywhere, using their smartphones or computers. This ease of use can enhance the customer's shopping experience, making them more likely to return to the retailer. 

Catering to different consumer demographics

According to Vogelpoel, digital gift cards enable retailers to tap into budget-conscious consumers during economic challenges, especially when it comes to subscriptions.

"Instead of committing to any long-term subscription, customers can still engage with the brands they love on their own terms. Digital top-up cards help consumers to manage spending, providing a budget-friendly option. They also reduce the risk of consumers continuing to pay for forgotten or unnecessary subscriptions."

In addition to managing spend, gift cards can mitigate fraud risks, as "Personal data isn't shared during transactions, enhancing security and attracting privacy-concerned consumers."

Retailers also leverage digital gift cards to appeal to corporate clients, enabling businesses to reward employees or gift customers.

They provide a flexible, cost-effective solution to corporate gifting which can be easily customised and distributed in bulk, says Vogelpoel.

How can retailers leverage digital gift cards for marketing?

Adopting digital gift cards gives retailers a range of marketing strategies.

The first strategy Vogelpoel highlights is "enhanced brand presence in various digital gift card stores and across social media which drives traffic to the retailer."

In addition, digital gift cards support brands seeking to expand their global reach. "They enable retailers to test the waters in new markets, providing valuable insights about popular product categories and responses to marketing strategies."

Vogelpoel asserts that digital gift cards are a "Useful tool for re-engaging customers, whether retailers are attempting to recover abandoned shopping carts or bring back previous customers. Offering digital gift cards once a certain spending threshold is reached, or upon the referral of a friend, make eye-catching emails for retailers."

The data from digital gift cards can also be used to refine retailer strategies. Vogelpoel's first example is: "Analysing purchase patterns and redemption occurrences to glean insights into customer preferences and behaviour, which can then be used to create personalised marketing campaigns and product recommendations."

Another use for digital gift card data is tracking the geographic distribution of gift card purchases to "Inform decisions regarding store locations and targeted advertising efforts. Understanding the demographics of gift card purchasers and recipients can also help customise promotions and offerings to specific consumer segments."

Moreover, monitoring the timing of gift card activations and redemptions can assist retailers in optimising inventory management and forecasting demand. 

The technology behind digital gift cards

Vogelpoel compares technological advancements in digital gift cards to short messaging service, which was once just a platform for sending text messages and is now an integral part of two-factor authentication processes.

"Digital gift cards run on the same rails as its predecessor the physical card using the same code that was once printed on plastic. Digital gift cards are a technological advancement in and of themselves, and yet are still not standing still."

The rise of the smartphone and mobile wallets have spurred innovation in the digital gift card industry, as consumers can now store, manage and redeem digital gift cards from apps, websites, and in-store, points out Vogelpoel.

They are now a versatile tool for consumers, enabling budgeting, security and gifting in a wide array of applications.

The future of digital gift cards

Vogelpoel believes that the future of digital gift cards in e-commerce is likely to see more customisation, integration with mobile wallets, and enhanced security features, further impacting consumer behaviour and cross-border e-commerce trends.

"With advancements in AI and other data analytics, we expect increased personalisation, security, and convenience.

"Overall, the defining force for digital gift cards in the e-commerce industry in the coming years is flexibility; they serve the underbanked consumer, the security-conscious consumer, the budgeting consumer and many more."