Meet Giftly: A gift card company with actual tech cred

Gift cards are big business. Studies show that 50 percent of all Americans either buy or receive a gift card every year, and the industry as a whole brings in $100 billion annually. But gift card companies are not exactly known for being on the cutting edge of technology. That is, until now.

Giftly, a San Francisco-based startup that launched to the public last month, is bringing serious innovation to how gift cards work.

How it works

Here are the basics: Giftly lets you buy gift cards that work at any place of business in the U.S. that is listed on Yelp — restaurants, bars, spas, clothing stores, you name it. A Giftly card can be customized to work at up to three different locations, so the recipient can have a choice of how and where to spend it.

This is possible for two main reasons: Giftly utilizes Yelp’s open API, and it does some really cool stuff at the point of redemption. When a recipient wants to use his Giftly, he goes to on a mobile phone. Once Giftly verifies that the recipient is at one of the places on the gift card by checking the phone’s location data, the user can pay for something there exactly like he normally would, with cash or a credit card. Giftly immediately reimburses the designated amount immediately to a registered credit card, debit card or PayPal account. For its part, Giftly makes money by charging a small fee to the gift card buyer.

What’s under the hood

Creating a Giftly screenshot (click to enlarge)

Giftly has developed some serious technology and business methods to make this work seamlessly, says founder and CEO Timothy Bentley (who is best known for being employee number one at Aardvark, the social search startup acquired by Google for $50 million in 2010.) After all, it’s not for nothing that large-scale innovation has not yet happened in the gift card space, Bentley said in an interview this week:

“This is a heavily regulated space, and we’ve spent months working with banks and lawyers so that we could become experts in the payment space. The same challenges that Google Wallet has, we have. The way we’ve structured the product has been very innovative.”

Not surprisingly, Giftly plans to protect that innovation: The company has filed two patents, one concerning the way the gift card is created and one on how the financial side of the product works. Giftly has 12 employees and has raised $1.8 million in a seed round of funding from Baseline Ventures, RPM Ventures and Lightspeed Partners. Bentley says the company will likely raise some more funding after the holiday season is over.

Personal gift cards: No longer an oxymoron

The coolest part about Giftly cards to me is that they can truly work everywhere. For example: I live in San Francisco. This Christmas, rather than buying my sister in Chicago a gift card to a chain like American Apparel (s APP) or Starbucks (s SBUX), I can get her a Giftly to spend at a local shop there, such as Eskell clothing boutique or Ipsento Cafe. It’s still a dead easy thing to buy, but it has the potential to come across as a far more personalized present than gift cards are known to be.

The gift card market is tough to break into, as it’s currently dominated by huge players such as Blackhawk Network (a subsidiary of grocery giant Safeway) and Incomm, which reportedly brings in more than $300 million in revenue annually. But the industry could clearly stand to be brought up to speed with our increasingly mobile and social world, and who better than a tech industry startup to do it? Giftly is giving it a solid try, and it will be interesting to see how it grows in the months ahead.