Why digital gift cards are quickly replacing their plastic swipe cards

“It tells you what you can do if you do things that are clear, and simple and seamless,” he said. “There’s a lot to be said about convenience.”

About 55% of shoppers say they would like to receive a gift card for a holiday present, according to the National Retail Federation. In turn, as much as $29.3 billion is expected to be spent on gift cards, especially on restaurants, general use bank-issued cards and department stores. Already, about 25% of shoppers bought gift cards during the Cyber 5 weekend.

But the medium of how these cards reach their intended recipient is shifting. PayNXT360, a digital payments research firm, anticipates the U.S. gift card market is expected to see compound annual growth rate of 5.7% through 2027, led by the growth of digital services. More companies — like Evite as well as Venmo — are offering ways for customers to buy digital gift cards. Individual brands are also offering the method, with online secondhand marketplace ThredUp exclusively selling digital gift cards until this year.

At Evite, in addition to holidays and birthdays, people who are invited to a party are giving gift cards to the host to their RSVPs. Taken together, over 20% of customers across Evite’s business are adding a gift card — about 10 times the percent of customers who would’ve previously paid for a service, Yeom said.

“From my standpoint,” Yeom said, “We aren’t going to be surprised if down the road in our future, our gift card and greeting card business is a big as our core invitation business.”

Venmo, the payment app owned by PayPal, rolled out a gift card feature this quarter. The company found that 78% of its users were already using Venmo to send money as a gift to family or friends, and had rolled out a “gift wrap” feature to help personalize the transaction. A Venmo spokesperson wouldn’t share how many users have access to the feature or how many transactions have been completed so far, but called the service “a natural evolution of the Venmo gifting experience.”

Givex, a gift card and loyalty program management system, found that about a third of shoppers prefer to get a digital gift card, with slightly higher figures for shoppers under 34. Mo Chaar, Givex’s chief commercial officer, said that the company started as a digital gift card tool in 1999, then pivoted to distributing physical cards because “the world wasn’t ready for it at that time.” The demand for digital started in the late 2010s in step with the increase in online shopping, then the pandemic “accelerated demand for digital.”

Since then, retailers are getting creative with how to pitch and deliver these products. Personalization is key, Chaar said, both from a brand perspective and for the gift-giver. Features like adding a video message or putting a photo on the delivery is more popular… like adding photos or videos to the gift.

“Digital gifting previously had the connotation of not being personal, ‘I’m just sending you this, here you go,’” Chaar said. “But now with the ability of e-commerce, it allows for people to personalize it more.”

Melissa Tatoris, vp of retail at marketing firm Zeta Global, echoed that the key to making digital gift cards work is to make it personalized. Rather than just send a coupon code on an email, the giver should be able to design how the message looks and add a personal note. Target, for example, has at least 80 designs available for gift cards sent by email. 

“They can ramp it up and have 100 different images to choose from, and you can pick the image that matters,” she said. “By keeping the customer at the center of everything you do, I think that’s where digital gift cards will play.”

Behind the scenes, the services are able to accommodate retailer promotions, bulk orders or specially-timed deliveries in ways that could be cumbersome with physical cards. Brett Narlinger, svp of global commerce at Blackhawk Network, a payments provider that specializes in gift cards as well as other rewards programs, said digital gift cards have seen has experienced triple-digit CAGR in 2020 and 2021, with sales peaking this year during Cyber5.

This digital gift card boom could be attributed to the efficiency that a digital promotion can come with. “In physical environments, it takes a while and you have to shift things,” Narlinger said. “Online, I can make a decision today and it can take place tomorrow.