Will Apple Pay Replace Gift Cards?

New technology puts new guiding principles in play for gift card sales.

Retailers have long known of the hidden bounty in gift cards. Billions of dollars in lost, forgotten, unredeemed cards represent a mammoth seasonal present to stores. Even cards that are eventually used enhance profits because retailers gain from the float; they often have cash in hand long before any merchandise is bought.

What a subsidy by consumers – who expect to buy $31.74 billion in gift cards this holiday season, according to the National Retail Federation’s (NRF) Gift Card Spending Survey. That’s $172.74 per card purchaser, up from $163.16 last year.

What’s been missing in the process of selling, gifting and redeeming gift cards is a closed loop – one that would enable cardholders to more assuredly capture the full amount of their balances, or that would allow retailers to issue reminders after a certain period of time that a balance exists, The Lempert Report observes. While this may be fraught with fraud potential, security could be built in. It also seems a bit unfair to us that no safety net has existed for consumers because gift cards are bearer instruments.

We urge retailers to rethink gift cards to encourage a system of high redemption rates that maximize value to consumers – and minimize the unearned profits to retailers from unused cards. Why take money from their very own pockets? It’s solid, ethical business – with a long-tail benefit that could be monstrous to the first retailers adopting such practice.

Why monstrous?  Because 62% of shoppers want to receive a gift card this holiday season - this makes gift cards “the most requested gift item eight years in a row,” states NRF.  A safety-net policy could be a huge differentiator that wins with consumers on an emotional level, we believe.

Until retailers shift, however, consumers have the promise of Apple Pay, which already has some of the nation’s major banks aligned with it.  Among them:  Bank of America, Wells Fargo, Citi and Capital One.  Also accepting Apple Pay are Whole Foods Market, Meijer, Walgreens and SpartanNash.

Here’s our vision:  Shoppers who buy gift cards with Apple Pay could have recipients link them to one of their bank accounts or an e-mail address.  For a used card with just a nominal balance remaining, press a button to transfer that balance to a bank account.  For a card that has gone unused for a stipulated period – say, a couple of months – a reminder notification goes out.

Who’ll be first to work on this?