In a time of real-time, instant payments, it is strange to see that companies providing pre-paid gift vouchers are still massively being created and continue to grow.
At first sight buying such a gift voucher has only disadvantages, as it converts liquid currency to a product, with less favorable qualities (i.e. can only be consumed in certain shops or even in only 1 shop and usually limited in time). There are however many good reasons for the existence of such gift vouchers:
In many countries there is a fiscal advantage for employers to offer such gift vouchers to their employees or to their business relations. Of course the government limits the amount and frequency (usually only for specific occasions) at which such vouchers can be offered and limits the places (usually can only be consumed in that country) where they can be consumed, but it’s still a very interesting way for businesses to offer a highly liquid advantage/gift at a lower cost.
A gift voucher is often a good compromise, between giving cash and giving a well-specific gift, as both sides of the spectrum pose issues, which are solved by a gift voucher:
Giving cash (cash is the universally accepted gift card):
In much cultures giving cash is socially not well accepted
The recipient can use the money for his day-to-day spending (pay for the mundane), while the giver wants to know that his gift is spent on a treat or on something desirable (at which moment, the recipient makes a positive connection with the giver)
Selecting a gift (contrary to a gift voucher, which attempts to leave the choice of the bought product up to the receiver)
The giver has a lot of effort and stress of searching and buying a gift
The giver has the risk of selecting the "wrong" gift (which the recipient doesn’t like, already has…). And receiving such a "wrong" gift is more common than you might think. Different surveys in Belgium indicate that around 15-20% of people have already tried to resell a wrong gift they received and this is only the tip of the iceberg, as a much bigger group keeps the wrong gift (not to offend the giver) or donates it away.
It should therefore come as no surprise that gift cards are a popular gift to give and to receive. In the US, gift cards are the most-wanted gift by women and the third-most wanted by males.
Still many people think it’s easy and impersonal to give a gift voucher, as it is too close to giving cash. It’s important however to consider that between the extremes of giving pure cash and selecting a gift or even making a gift yourself, there is a whole scale of options in between. Easily put we can classify these options according to 2 axes:
The effort put into it by the giver (degree of personalization)
The choice the beneficiary has what to do with the gift (we could call it the liquidity of the gift)
More in detail:
Degree of Personalization of the gift.
While a chosen or hand-made gift can be very personal, there are also options to make cash gifts more personal, e.g.
Add a written paper card, a small letter or even a picture or movie to the gift
Some banks offer already the feature to link a gift card to a credit transfer. The recipient will not only receive the cash, but also the gift card, allowing the cash transfer to become less transactional. Some banks have even foreseen the ability of the recipient to reply with a thank you note.
Add money on a pre-paid cash card, which could be personalized (e.g. nice picture on the plastic card). These so-called open loop or network cards can be used in any shop, accepting a bank card.
Buying a gift voucher (especially when combined with a personal note) goes one step further, as the giver has also taken the time to think about which gift voucher (typically with an associated acceptance network) would be the best fit for the recipient.
Liquidity of the gift
With cash being fully liquid, a gift voucher can offer a large scale of liquidity options. Some gift vouchers can only be used at 1 specific shop, while others can be used in a large number of shops (of a certain city, region, sector, chain…). We could however say that (usually) the less liquid a gift voucher is, the more personalized the voucher becomes (as the giver needs to know better the preferences of the recipient).
Therefore, gift voucher companies try to differentiate themselves via a specific positioning on these axes. Typical options are:
Offering a nice certificate or plastic card, possibly wrapped in a nice gift box.
Allowing to personalize the certificate or card, by adding the name of the recipient, a personal message or a picture or movie. Many of them allow also to adapt the style to the recipient and/or the occasion of the gift.
Allowing to select the merchants where the gift voucher can be used. This can be by issuing different voucher boxes (like e.g. the different BONGO-vouchers) or by digitally selecting the target merchant(s). Typical examples are the experience gift vouchers (like GiftForYou, Vivabox, Bongo, Cadeaubox) and store-specific vouchers (like Zalando, Bol.com, Amazon, iTunes, Netflix, MediaMarkt, HEMA, IKEA…). In the case of experience gift vouchers, the gift box can also include a nice book explaining the different options where the voucher can be used, which increases the personalization.
Avoiding showing the amount on the voucher, which makes it more socially acceptable. Instead the voucher contains a scannable identifier (e.g. QR code), which makes the link with the voucher balance. One of the main issues with this, is the fear of givers that the amount was not correctly credited on the gift card. Most shops give the cash ticket along in case of issues, but better solutions are available, which provide a better level of comfort to the giver. For example, allowing the giver to scan also the card,
While the positioning of a gift voucher on the 2 above axes is a choice (there is no right answer), gift vouchers are also characterized by the frictionless and secure nature to request, give, activate (if applicable) and consume the voucher. On these characteristics it is clear that the more frictionless and secure, the better.
Typical characteristics of frictionless and secure are:
Support complementary payments, i.e. allow to pay at a merchant a part of the transaction with a gift voucher and the remainder with another payment method
Support partial payments, i.e. avoid that a gift voucher has to be consumed in full but allow that only a part of the gift voucher is consumed and that other parts are consumed at a later date and even at another merchant.
Adequate protection in case of fraud, loss or theft. This can be done via a digitalization of the gift voucher, protection of the gift card with a PIN code, no credentials passed in plain text during payment, making the gift voucher nominative…
Ease to carry the voucher along, i.e. via digitalization of the voucher (so that you have it on your smart phone) or a small plastic card which fits well in your wallet.
Avoid having to register yourself to the voucher issuer company as voucher beneficiary, unless there is a real advantage for you (like an increase of the buying power). Not only is such a registration an extra effort, but most people prefer not to share their personal data if not needed (privacy concern).
Easy ordering of a voucher, i.e. ordering of a voucher should be a fast, simple act, with user-friendly features like personalization, setup of a group gift (money pot), allow to select from different delivery options (digital delivery, certificate to print, gift box…), delivery at specific date… Furthermore in every step of the voucher lifecycle it should be very clear (to the giver and recipient) what are the conditions of the voucher and where it can be used.
Generation of reminders, i.e. automatic generation of reminders to a beneficiary about relevant info related to a voucher in possession, e.g. get notified about upcoming expiration of a voucher, get a reminder when you step into an eligible shop and you still have unspent vouchers…
A strong financial position of the gift issuer, i.e. avoid bankruptcy of the voucher issuer company, which would make the voucher worthless. Luckily thanks to strong regulation and the existence of guarantee mechanisms, this risk is low, but not inexistent (e.g. for vouchers issued by a specific merchant, the risk is definitely present).
A frictionless checkout experience, both in physical stores and online. This is often an issue, due to all kinds of technical constraints with intermediate parties like PSPs, terminal vendors, cash registers… In order to circumvent this issue, voucher issuers can either limit the acceptance network to merchants and channels that can accept the voucher in a frictionless way or pass via work-arounds like cash back systems or the reuse of existing payment schemes like VISA and MasterCard, on which filtering is applied. These work-arounds often mean that the voucher company has less control over the acceptance network and the commission structure.
Availability of a platform for gift beneficiaries to exchange a gift voucher to another gift voucher with a different acceptance network or with the possibility to extend your vouchers (at a cost or not)
Obtain a "bonus" on a voucher, i.e. increase your buying power by buying a voucher (leveraged by the government, voucher issuer or accepting merchant), i.e. the giver buys a voucher for a specific amount, but pays less than the voucher amount. E.g. at Monizze a temporary offer existed end 2019 where a 40€ gift vouchers could be replaced by a 50€ Zalando gift voucher, giving an increase of 25% in buying power.
Apart from being frictionless and secure, another aspect is of course the price. There is the price (transaction fee) for the giver to buy the voucher (often for free, but a fee can be charged in case of creation of personalized certificate/gift box or in case of B2B business) and the commission for the merchant to accept the voucher.
Finally, there is also the aspect of expiration. Consumers are very negative with regards to this type of revenue, as they consider it as "stolen" money. However, if the voucher company does all effort to avoid expiration, there is also a responsibility for the end-user. Nonetheless many voucher companies have implemented creative solutions to deal with these expired vouchers, e.g. longer expiration dates (in many countries an expiration date is however enforced by the government to avoid creating a new currency and to ensure rapid consumption of the gift amount), giving (part of) the expired amounts to charity, allowing customers to extend a voucher (with or without a cost)…
While the above demonstrates the advantages of a gift voucher to the giver and beneficiary, at the same time, gift vouchers are also very interesting for a merchant to issue themselves or to accept gift vouchers of a voucher issuing company:
It is a way to acquire new customers (e.g. a customer offering a gift card of a store to a non-customer), as it is a way to pull people into the store
Extra revenue generation, even when considering that some gift voucher issuing companies can ask high commissions to the merchants (e.g. certain experience gift vouchers ask up to 35% commission on the transaction amount).
Leads to a higher spending at the merchant, i.e. the majority of people spend more than the value of the voucher in the store
Publicity for a merchant on the gift voucher issuer channels (in case of accepting gift vouchers of a voucher issuing company)
If the merchant furthermore issues the voucher himself, he can have additional advantages of:
An interest-free loan from consumers to businesses, as the average time between a gift card purchase and its redemption is typically around two months. This can be particularly interesting in difficult periods, e.g. during the Covid-19 crisis a lot of small merchants sold vouchers to their regular customers to keep a stream of revenue also during the period of confinement.
Collecting the money of expired vouchers. A quarter of gift card recipients still have not spent their gift cards a year after receiving them (according to a Consumer Reports survey).
The above article shows that there are hundreds of ways to differentiate with a gift voucher and that there is still a lot of innovation possible to make gift vouchers more flexible, convenient (more frictionless) and secure. One thing is for sure however, gift vouchers should tell a story. They should express a concept/idea to the recipient (e.g. promoting your local city, give people a unique experience, allow people to discover new horizons…). The future is in this story telling. All other vouchers are just a bad translation of giving cash.
In a time of real-time, instant payments, it is strange to see that companies providing pre-paid gift vouchers are still massively being created and continue to grow.
At first sight buying such a gift voucher has only disadvantages, as it converts liquid currency to a product, with less favorable qualities (i.e. can only be consumed in certain shops or even in only 1 shop and usually limited in time). There are however many good reasons for the existence of such gift vouchers:
In many countries there is a fiscal advantage for employers to offer such gift vouchers to their employees or to their business relations. Of course the government limits the amount and frequency (usually only for specific occasions) at which such vouchers can be offered and limits the places (usually can only be consumed in that country) where they can be consumed, but it’s still a very interesting way for businesses to offer a highly liquid advantage/gift at a lower cost.
A gift voucher is often a good compromise, between giving cash and giving a well-specific gift, as both sides of the spectrum pose issues, which are solved by a gift voucher:
Giving cash (cash is the universally accepted gift card):
In much cultures giving cash is socially not well accepted
The recipient can use the money for his day-to-day spending (pay for the mundane), while the giver wants to know that his gift is spent on a treat or on something desirable (at which moment, the recipient makes a positive connection with the giver)
Selecting a gift (contrary to a gift voucher, which attempts to leave the choice of the bought product up to the receiver)
The giver has a lot of effort and stress of searching and buying a gift
The giver has the risk of selecting the "wrong" gift (which the recipient doesn’t like, already has…). And receiving such a "wrong" gift is more common than you might think. Different surveys in Belgium indicate that around 15-20% of people have already tried to resell a wrong gift they received and this is only the tip of the iceberg, as a much bigger group keeps the wrong gift (not to offend the giver) or donates it away.
It should therefore come as no surprise that gift cards are a popular gift to give and to receive. In the US, gift cards are the most-wanted gift by women and the third-most wanted by males.
Still many people think it’s easy and impersonal to give a gift voucher, as it is too close to giving cash. It’s important however to consider that between the extremes of giving pure cash and selecting a gift or even making a gift yourself, there is a whole scale of options in between. Easily put we can classify these options according to 2 axes:
The effort put into it by the giver (degree of personalization)
The choice the beneficiary has what to do with the gift (we could call it the liquidity of the gift)
More in detail:
Degree of Personalization of the gift.
While a chosen or hand-made gift can be very personal, there are also options to make cash gifts more personal, e.g.
Add a written paper card, a small letter or even a picture or movie to the gift
Some banks offer already the feature to link a gift card to a credit transfer. The recipient will not only receive the cash, but also the gift card, allowing the cash transfer to become less transactional. Some banks have even foreseen the ability of the recipient to reply with a thank you note.
Add money on a pre-paid cash card, which could be personalized (e.g. nice picture on the plastic card). These so-called open loop or network cards can be used in any shop, accepting a bank card.
Buying a gift voucher (especially when combined with a personal note) goes one step further, as the giver has also taken the time to think about which gift voucher (typically with an associated acceptance network) would be the best fit for the recipient.
Liquidity of the gift
With cash being fully liquid, a gift voucher can offer a large scale of liquidity options. Some gift vouchers can only be used at 1 specific shop, while others can be used in a large number of shops (of a certain city, region, sector, chain…). We could however say that (usually) the less liquid a gift voucher is, the more personalized the voucher becomes (as the giver needs to know better the preferences of the recipient).
Therefore, gift voucher companies try to differentiate themselves via a specific positioning on these axes. Typical options are:
Offering a nice certificate or plastic card, possibly wrapped in a nice gift box.
Allowing to personalize the certificate or card, by adding the name of the recipient, a personal message or a picture or movie. Many of them allow also to adapt the style to the recipient and/or the occasion of the gift.
Allowing to select the merchants where the gift voucher can be used. This can be by issuing different voucher boxes (like e.g. the different BONGO-vouchers) or by digitally selecting the target merchant(s). Typical examples are the experience gift vouchers (like GiftForYou, Vivabox, Bongo, Cadeaubox) and store-specific vouchers (like Zalando, Bol.com, Amazon, iTunes, Netflix, MediaMarkt, HEMA, IKEA…). In the case of experience gift vouchers, the gift box can also include a nice book explaining the different options where the voucher can be used, which increases the personalization.
Avoiding showing the amount on the voucher, which makes it more socially acceptable. Instead the voucher contains a scannable identifier (e.g. QR code), which makes the link with the voucher balance. One of the main issues with this, is the fear of givers that the amount was not correctly credited on the gift card. Most shops give the cash ticket along in case of issues, but better solutions are available, which provide a better level of comfort to the giver. For example, allowing the giver to scan also the card,
While the positioning of a gift voucher on the 2 above axes is a choice (there is no right answer), gift vouchers are also characterized by the frictionless and secure nature to request, give, activate (if applicable) and consume the voucher. On these characteristics it is clear that the more frictionless and secure, the better.
Typical characteristics of frictionless and secure are:
Support complementary payments, i.e. allow to pay at a merchant a part of the transaction with a gift voucher and the remainder with another payment method
Support partial payments, i.e. avoid that a gift voucher has to be consumed in full but allow that only a part of the gift voucher is consumed and that other parts are consumed at a later date and even at another merchant.
Adequate protection in case of fraud, loss or theft. This can be done via a digitalization of the gift voucher, protection of the gift card with a PIN code, no credentials passed in plain text during payment, making the gift voucher nominative…
Ease to carry the voucher along, i.e. via digitalization of the voucher (so that you have it on your smart phone) or a small plastic card which fits well in your wallet.
Avoid having to register yourself to the voucher issuer company as voucher beneficiary, unless there is a real advantage for you (like an increase of the buying power). Not only is such a registration an extra effort, but most people prefer not to share their personal data if not needed (privacy concern).
Easy ordering of a voucher, i.e. ordering of a voucher should be a fast, simple act, with user-friendly features like personalization, setup of a group gift (money pot), allow to select from different delivery options (digital delivery, certificate to print, gift box…), delivery at specific date… Furthermore in every step of the voucher lifecycle it should be very clear (to the giver and recipient) what are the conditions of the voucher and where it can be used.
Generation of reminders, i.e. automatic generation of reminders to a beneficiary about relevant info related to a voucher in possession, e.g. get notified about upcoming expiration of a voucher, get a reminder when you step into an eligible shop and you still have unspent vouchers…
A strong financial position of the gift issuer, i.e. avoid bankruptcy of the voucher issuer company, which would make the voucher worthless. Luckily thanks to strong regulation and the existence of guarantee mechanisms, this risk is low, but not inexistent (e.g. for vouchers issued by a specific merchant, the risk is definitely present).
A frictionless checkout experience, both in physical stores and online. This is often an issue, due to all kinds of technical constraints with intermediate parties like PSPs, terminal vendors, cash registers… In order to circumvent this issue, voucher issuers can either limit the acceptance network to merchants and channels that can accept the voucher in a frictionless way or pass via work-arounds like cash back systems or the reuse of existing payment schemes like VISA and MasterCard, on which filtering is applied. These work-arounds often mean that the voucher company has less control over the acceptance network and the commission structure.
Availability of a platform for gift beneficiaries to exchange a gift voucher to another gift voucher with a different acceptance network or with the possibility to extend your vouchers (at a cost or not)
Obtain a "bonus" on a voucher, i.e. increase your buying power by buying a voucher (leveraged by the government, voucher issuer or accepting merchant), i.e. the giver buys a voucher for a specific amount, but pays less than the voucher amount. E.g. at Monizze a temporary offer existed end 2019 where a 40€ gift vouchers could be replaced by a 50€ Zalando gift voucher, giving an increase of 25% in buying power.
Apart from being frictionless and secure, another aspect is of course the price. There is the price (transaction fee) for the giver to buy the voucher (often for free, but a fee can be charged in case of creation of personalized certificate/gift box or in case of B2B business) and the commission for the merchant to accept the voucher.
Finally, there is also the aspect of expiration. Consumers are very negative with regards to this type of revenue, as they consider it as "stolen" money. However, if the voucher company does all effort to avoid expiration, there is also a responsibility for the end-user. Nonetheless many voucher companies have implemented creative solutions to deal with these expired vouchers, e.g. longer expiration dates (in many countries an expiration date is however enforced by the government to avoid creating a new currency and to ensure rapid consumption of the gift amount), giving (part of) the expired amounts to charity, allowing customers to extend a voucher (with or without a cost)…
While the above demonstrates the advantages of a gift voucher to the giver and beneficiary, at the same time, gift vouchers are also very interesting for a merchant to issue themselves or to accept gift vouchers of a voucher issuing company:
It is a way to acquire new customers (e.g. a customer offering a gift card of a store to a non-customer), as it is a way to pull people into the store
Extra revenue generation, even when considering that some gift voucher issuing companies can ask high commissions to the merchants (e.g. certain experience gift vouchers ask up to 35% commission on the transaction amount).
Leads to a higher spending at the merchant, i.e. the majority of people spend more than the value of the voucher in the store
Publicity for a merchant on the gift voucher issuer channels (in case of accepting gift vouchers of a voucher issuing company)
If the merchant furthermore issues the voucher himself, he can have additional advantages of:
An interest-free loan from consumers to businesses, as the average time between a gift card purchase and its redemption is typically around two months. This can be particularly interesting in difficult periods, e.g. during the Covid-19 crisis a lot of small merchants sold vouchers to their regular customers to keep a stream of revenue also during the period of confinement.
Collecting the money of expired vouchers. A quarter of gift card recipients still have not spent their gift cards a year after receiving them (according to a Consumer Reports survey).
The above article shows that there are hundreds of ways to differentiate with a gift voucher and that there is still a lot of innovation possible to make gift vouchers more flexible, convenient (more frictionless) and secure. One thing is for sure however, gift vouchers should tell a story. They should express a concept/idea to the recipient (e.g. promoting your local city, give people a unique experience, allow people to discover new horizons…). The future is in this story telling. All other vouchers are just a bad translation of giving cash.
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