The Gift Card Sector Comes of Age (Series). Part 1 of 5: Gift Cards are Cool Again (and Everyone Wants In)

The gift card sector is sizzling these days – more so than they’ve ever been. In the past four years, there has been a significant uptick in new technology and new business models in the sector. The new entrants have reached critical mass such that this year’s Money2020 conference organizers selected an e-gift card start-up — Slide – to be amongst its featured Launchpad 360 companies, and chose to include in this year’s agenda several sessions on the topic of gift and pre-paid cards, with one session proclaiming that The Gift Card Is Cool Again.
But the real indicator that there is real opportunity in the sector is that there is diverse and large-scale investment being put into the e-gift card sector. While obvious that MasterCard would include companies like Slide in its incubator program, celebrities such as Mary Hart (a Yiftee investor), national retailers, small fintech funds as well as top tier VC’s like Bessemer Venture Partners are identifying both market need and product fit within the sector.
Companies such as Loop Commerce (not to be confused with mobile wallet/POS company LoopPay) garnered a $16 million series B round in April 2015 to build out its e-gift card business, and more recently, scored a $9 million growth capital facility this past November to expand services surrounding its custom e-gift card business. And gift card marketplace Raise is using the $56 million Series B round the company secured in January of this year to expand aggressively — growing from four employees working out of a small apartment in 2013 to a 200+ workforce housed in a 50,000 square foot space in Chicago’s Loop business district. On a smaller scale, hyper-local e-gift provider Yiftee has carved out its own market niche, raising over $3 million since its founding in 2011.
Gift card companies are also being acquired by some of the fintech industry’s most formidable players, with First Data Corporation buying bitcoin-based Gyft in July of 2014, less than a year after the start-up’s $5 million series A round. One year later, First Data continued its mission of building the “industry’s most integrated, complete and comprehensive prepaid gift card solution at scale” via its acquisition of Transaction Wireless, a digital gift card distribution and marketing platform.
In the meantime, established gift card infrastructure companies are growing and consolidating. Similar in rationale to eBay’s separation from PayPal, Safeway (yes the grocery chain) spun off its fast-growing gift card division Blackhawk Networks in April 2014. A year earlier in April 2013, the wholly-owned subsidiary had raised $230 million, for a market value of $1.2 billion. Significantly, the sale was led by Tier One banks Goldman Sachs, Bank of America, Citigroup and Deutsche Bank. Eight months post-IPO, Blackhawk purchased European gift card startup Retailo, deepening its international reach (20 countries) and continuing to diversify outside the U.S.
So why is the gift card sector taking off now? There is a confluence of factors that are contributing to the rise of the e-gift card. The most important is the advent of mobile. While no single mobile wallet has taken off across all consumer demographics, the plethora of offerings and accompanying marketing drives have contributed to a consumer belief that transacting via one’s mobile device is reasonably safe and a viable way to pay (as opposed to using cash or a card). Add to that the willingness of consumers to trade electronic security and their personal information (PII) for the convenience of mobile and you have a situation where the loading of gift card value onto one’s phone is a better way to manage these pre-paid assets. We’ll take a look at mobility and the other social, business and technology trends that are making pre-paid value cards relevant and valuable to both consumers and businesses in part two of this five part series.

Digital payments are rounding into form

Online and, especially, in-store payments are likely to advance in 2014. Banks, retailers and other payment processors are all making strides to simplify their processes and to come front and center in consumers’ minds. Not only ease-of-use, but discounts, record-keeping, and other perks are being employed to lure customers to new payment services.

American Banker has an article that looks at new solutions in PayPal’s Innovation Center and explores the ways that eBay otherwise plans to create more of an in-store shopping experience. As technology blurs the line between online and instore shopping, online providers are establishing in-store beachheads much as in-store retailers had previously expanded online. Similarly, not only are retailers dabbling with digital payments, but banks such as Capital One and U.S. Bank are also embracing discount and merchandizing tie-ins to promote their payment products.

We are still in the early days of the new payment sweepstakes and the ultimate standards and winners are not year clear. But various types of marketing hooks are starting to emerge and evolutionary growth in the sector is quickening.

MasterCard expands PayPass wallet service into a platform

MasterCard is expanding its mobile payment service PayPass into a larger platform called PayPass Wallet Services that will enable PayPal-like online payments and will include APIs for developers to integrate their payment apps and services with PayPass.