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Gift certificates and gift cards are going virtual, in which mode they are becoming money. Where might they go in the future?

I haven’t had a chance to look for the latest figures for the last holiday season (if they are in) but certainly last holiday season the trend was already clear: gift certificates are huge and getting bigger. Gift certificates are the most-desired present for the eighth straight year and, as was discussed at length at the Tomorrow’s Transactions Forum back in 2013, the transition from physical gift cards and gift certificates to electronic gift certificates is well underway. There is really fun stuff going on in this space at the moment, an example being PayPal’s deal with Blackhawk (which I thought was somewhat lost in Apple Pay hoo-ha last year, but it seemed pretty important to me) — and PayPal have continued to build their capabilities in this space. But the gift trend that I’m most interested in is virtualisation.

the purchase of digital gift cards over the Dec. 2013 holiday time frame outpaced physical cards 57% to 43% among Giftango card issuers.

[From Has the Age of Plastic Gift Cards Ended? – PaymentsJournal]

You might wonder, as I do, what the difference between an electronic gift certificate and money is. Well, I suppose the first difference that you would fix on is that you can use money everywhere whereas you can only use gift certificates in certain places. True. But suppose in some future world you could automatically invisibly, electronically and instantly swap the gift certificates that you have for the gift certificates relevant to the shop that you are trying to buy something from. Then are they would just be another kind of money with a foreign exchange market to establish the values of the different kinds, or are you actually participating in a barter economy weighted by reputation?

You might even imagine an app on your phone that collects gift certificates and trades them for you. Setting aside the theoretical, I was very interested to see Walmart’s experiment in large scale gift trading over the holiday season.

Starting Christmas Day, Wal-Mart is letting customers exchange gift cards from more than 200 retailers, airlines and restaurants for a Wal-Mart card. The cards don’t expire and can be used in stores and online.

[From Wal-Mart tests gift card exchange – The Washington Post]

These electronic gift certificates — let’s call them “private money” for a moment — do not trade at par. I’m sure that in circulation some do, but not at the exchange. I’ll use an example I frequently use at conferences to make this point. A friend of mine was shopping at a farmers market somewhere in deepest Surrey, and bought a few vegetables and suchlike. When it came time to pay, she realise that she’d forgotten her purse so she began rummaging around in her handbag to see if she had any money but couldn’t find any. What she did find was a Marks & Spencer voucher for £10. Now, in deepest Surrey, Marks & Spencer is considered as reputable as the Bank of England, so she handed it over. It was accepted at par and she was given change in coin of the Realm. Would a voucher from Microsoft or Greggs or the Edinburgh Tram have been accepted at par? 

Shoppers won’t get the full value of their gift cards to use at Wal-Mart. For example, with Amazon.com, customers can redeem up to 95 percent, while for Staples that figure is up to 90 percent and for Gap, up to 85 percent. For some brands, a Wal-Mart gift card will be worth just 70 percent of the original card.

[From Wal-Mart tests gift card exchange – The Washington Post]

I thought this was fascinating. Predictable, to anybody who knows anything about economics, but fascinating nonetheless. The market is perfectly capable of discounting different kinds of money across space and time. If we allow a free market to operate, then it works just as we would expect and will clear efficiently.  I notice, for example, that they are buying Amazon gift cards at $.95 on the dollar. Let me say right now I will cheerfully pay the anybody $.96 on the dollar for a valid Amazon e-gift certificate number right now. I spend so much money on Amazon every month that Amazon gift certificates are, to all intents and purposes, money and if you want to sell it to me at a 4% discount then I will take it.

How this works for the issuers is, I would have thought, heading into the unknown. Obviously one of the key reasons for issuing gift certificates is to lock spending in to the issuers’ services. Elements of the business model are also, presumably, the float that sits on the cards before it is spent, the breakage (the amounts left unspent on cards sitting in drawers, although as I understand it there is state-by-state complex and confusing regulation about this in the US) and the upsell that the retailer expects when you come into the store to use your gift certificate and inevitably end up spending more than the face value. The retailers will have to compete to make their “money” more attractive than others. If they attempt to fix the exchange rates then Gresham’s law will swing into operation immediately.

Given these business models, it occurs to me that it might well be worth Walmart even offering to buy some gift certificates above par in order to direct traffic away from competitors, treating the foreign exchange spread as a more effective form of marketing than, say, TV advertising. Retailer A might buy Retailer B’s $1 gift certificates for $1.05 to get them out of circulation throughout the holiday season and then sell them at $0.95 at a quieter time.

The point that this left me pondering was that if there were different kinds of money in circulation, would the average person be able to understand this and manage it (as they used to a couple of hundred years ago), would they simply dump all but one kind of money and convert everything into their “reserve” currency or would intermediaries spring up to manage the currencies for them according to some predetermined policies. I suspect the latter, since changes in monetary arrangements always mean institutional change and this seems like a rational one to me, but I’m curious to hear what other people think which is why will have a discussion on this topic at some point during the day at the Eighth Annual Tomorrow’s Transactions Unconference in London on 9th February 2015, the day before the fabulous Finovate Europe. It’s only a tenner so you’d be mad not to grab one of the 100 places available. See you there.


  1. It is fascinating but quite logical due to the sense of technology and networking connect the information about values parties possess, where these value tokens were originally created for local usage.

    Private money, as I see them, were also private because the value can only be appreciated by a local crowd and the costs of transmuting it into another token were high. The proliferation of the web created exchange networks and so they impacted the world of private money. Closed-loop is hardly possible today.

  2. Gift Certificate is money and, you are right, its usability as money improves with the growth of exchanges. I am engaged with an entity that issues (gift) claims on publicly traded assets (like units – even its fractions – of stock, for instance). Both – a claim (of stock) and a stock – can be money with ‘electronic and instant swaps’ right at the counter, during a transaction session. With a duality of a transaction process (auth and settle) it is a straight possibility.

    Thank you. Maksim

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