Digital Gifting Alive and Well After Facebook Kills ‘Gifts’

giftcardFacebook announced yesterday that it would on August 12 shut down Facebook Gifts, its program selling virtual and physical gift cards for retailers such as Best Buy and Starbucks. Does this mean digital gift cards done?

Hardly. Several payments players are placing bets on gift cards just as Facebook backs off.

Payment processor First Data announced its purchase of virtual gift card provider Gyft for an undisclosed sum yesterday. Gyft is an online clearinghouse for customers to buy, sell, and use their gift cards, physical and virtual. Gyft is famous — or infamous — for its enthusiastic embrace of bitcoins. The move will allow First Data to deliver gift card capabilities to merchants. First Data acquired POS provider Clover last year, and subsequently rolled out Clover’s Square-like POS system to merchants.

Gift cards are attractive to merchants, as Jason Gardner of online-to-offline payments startup Marqeta has pointed out, because it allows retailers to capture customer revenue before they walk in the door. In a digital context, it also allows retailers to capture data and preferences about customers, and more deeply engage them.

Marqeta, incidentally, made Facebook Gifts a pillar of its business. About this, Gardner commented, “Facebook tests a lot of products in the market and ultimately the Facebook card and gifts as a whole didn’t get them the traction they expected. … The Facebook card was only one of a range of programs Marqeta has up and running. Our programs span across a wide spectrum of business models, so we are not dependent on the success of a single program.”

Mobile payments company (and First Data competitor) LevelUp also announced recently that its users could scan the QR codes on gift cards to add them to their LevelUp mobile payments app. Stores can sell virtual gift cards through LevelUp’s platform, and LevelUp can provide data to retailers offering only physical cards, bridging the digital and physical worlds. Adding gift cards should bring more retailers on board with LevelUp’s payment system, and could help with delivering that Starbucks relationship with customers that retailers crave. Gift cards represent a kind of currency, and there is value in being able to move that around.

It is not just active gift cards that are getting attention from startups. A company called CardCash buys unwanted gift cards and resells them. Think of it as a gift card secondary market. It currently works with physical cards, but is looking into digital cards, as well.

Gift cards are one of the fastest-growing areas of the red-hot prepaid card space, with customers estimated to spend nearly $80 billion on them in 2014, according to CEB Tower Group. Cardhub.com puts that number at more than $100 billion. So what made Facebook pull the plug? It seems the social network is looking to focus on ad revenue in its main app, and will likely develop transactional capabilities in its separate Messenger app, which will soon be under the stewardship of former PayPal CEO David Marcus. Or, to put it another way, Facebook doesn’t need to sell other people’s stuff when it can make more than $10 billion in advertising revenue a year and monetize its messaging, as well.

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