In the beginning, there was the gift certificate. And, the gift certificate was made plastic and became common among us.

The viability of gift cards is unquestioned, over $60 billion by most estimates. As with most financial products, gift cards moved from paper to plastic, and now, to the Internet. One of the early movers in the virtual gift card space is a company called CashStar, who, although less than three years old, has lassoed in CVS, Home Depot, Chili’s, Macraroni Grill and my personal favorite pizzeria, Uno Chicago Grill, among others. If gift cards could be called the weapon of choice for the lazy, virtual gift cards are the choice of the procrastinator. You can buy a virtual gift card, and put it in the recipient’s hands literally in minutes. How well are these cyber cards being accepted by merchants and consumers? We asked CEO and Co-Founder David Stone for his thoughts.

GR: So, where is the virtual gift card market today?
DS: When CashStar started out about two and half years ago, the e-gift card, or what we call the “digital” gifting marketplace, was pretty immature. There were 12 or 15 retailers that had some kind of e-card or e-cert offering, as some of them call it. The plastic form factor still dominates the industry.

GR: For the longest time, I’ve heard from gift card people that a gift card is an impulse purchase, and that’s why they put it on endcaps or near the checkout point. What I just heard you say of the maturation of the market, has that now changed?
DS: We believe, and what we hear from retailers, is that the growth has slowed or has been flat the last two years. And, while relatively nascent, the e-card or digital card area is seeing incredible [growth] - small numbers. We’re talking about a small base. But we’re seeing just incredible growth, and we’re hearing that from our retailers, too. We now have 60 brands that power the digital gift cards or e-gift cards.

GR: I suppose the Internet is responsible for a lot of the growth.
DS: With the Internet, obviously people are on all the time. They have the ability to buy a card, and email it or print it any time of day, any time of night, right?  We just came off Father’s Day. This is now our fifth holiday in the market, and our sales on Father’s Day, Sunday, were double Friday’s sales. And these are pretty big numbers. Thursday and Friday are typically the big, busiest days for in-store.

GR: Presumably, then, people were buying Father’s Day cards on Father’s Day?
DS: It’s people buying last-minute gift cards on the Internet. Still an impulse, but a completely different purchase motivation process? You know, “I can’t get to my dad,” or whatever, right? And it’s Sunday. Amazing. I mean, just amazing. The year before we’d always seen the day before [Father’s Day] the busiest, but this Father’s Day we saw just incredible sales.

GR: Is this like a viral thing that’s created on the Internet?
DS: I don’t know if it’s viral or not. I just think people are busy. You know, if you want to ship a piece of plastic to someone, 35 percent of gift cards are sent to people that live more than 50 miles away, you can’t do it.

GR: Yeah.
DS: And then, you know . . .

GR: If you’re like me, you forget until the last minute.
DS: Exactly, so it’s just a boom for retailers.

GR: Is the same true for other holidays?
DS: Christmas, it’s even more, because you can’t get anything shipped five days before, which is the busiest time of year. So, if you happen to be in the grocery store, great. But then you’ve still got to ship it, right?

GR: So what do you do? You receive this thing in your email and you print it out?
DS: You have two options – you can print it out. It’s just like printing out a photo. It has a bar code on it. And, then it gets scanned just like a regular gift card at the point of sale.

GR: The second option?
DS: You can use it online. And you can [buy it] on a mobile device the same way, or an iPad, or anything else.

GR: Can I send the gift to a mobile device?
DS: Well, you [could] do that. But basically if you want to send the gift card to your mobile device or to a friend’s mobile device, the bar code can be – in theory, I will say “in theory” because there are some challenges with it – scanned at the point of sale, or it can be keyed in.

GR: Scanned at the point of sale, off of the phone?
DS: Yes. There are some challenges with it, but it can be keyed in, so you no longer need the paper, right?

GR: Okay. So on the purchase side, it’s real easy: I can go on the Internet, I can just key in a few things, my credit card number, and boom! I’ve sent them a digital gift card, right?
DS: Correct. Exactly right.

GR: Now to redeem it: so the options are I can either print it out or – you know, a lot of people don’t like to hand somebody their mobile phone, so maybe that’s – I don’t know.
DS: That’s correct. There are issues with a mobile. There are definitely issues with it.

GR: Yeah.
DS: There are several tests going on, you know, around the country. Starbucks has 2-D scanners in their store. We’re not powering that application, but Starbucks allows the consumer to scan the 2-D bar code at the point of sale. And, they’re testing it in a dozen or 18 Starbucks locations.

GR: I assume you could also do something with a text message, like SMS.
DS: SMS is kind of the cruder form because, when you’re moving to a digital format, the retailer likes the gift to have a brand on it. You know, you want it to have the personal message; it is a gift at the end of the day. So, we think SMS is the lowest sort of value form. But, my view of mobile is: it’s still a rounding error, and it’s going to be somewhere between two to five years before it gets massive option.

GR: Now are you talking about mobile in general, or mobile e-gift cards?
DS: Well, mobile payments, mobile gift cards – you know, the whole mobile category is iffy.

GR: Some of our mobile people are telling us that mobile is a lot more imminent than that.
DS: I think mobile’s gonna play an important role, but given the scanning issues at the point of sale, given the awkwardness, given that Smartphone penetration (even though it’s growing), before all of the critical mass or the chasm gets crossed, so to speak, I think it’s somewhere between two and a half to five years.

GR: That long?
DS: Everybody gets excited about social media and mobile, and of course, now iPads and other form factors coming right on their heels from HP and Samsung and a whole bunch of other folks. It may be somewhat easier actually with those other form factors because they’re larger and present more scannable images.

GR: Sure.
DS: So you know, nobody’s quite sure. But let’s go back to our first principles. The market’s still dominated by plastic.

GR: Right.
DS: So we have to start there, and as the shift begins to move somewhat to the Internet or to your laptop or your PC or your Mac or whatever, and to your printer or using it online, that will be the first shift. And that’s happening now; we’re seeing it, right? You know, the company started out, as I said, over two and half years ago, and we sold a few thousand dollars, and now we’re becoming a large player in the market as we see more and more people begin to move to a digital card format.

GR: And are most people printing out the gift card and bringing it in? Is that the way they’re doing it?
DS: Well, it would depend on the retailer. Home Depot, a client of ours, or The Container Store, another client of ours, you might go online and use it as well. Travelocity’s a customer of ours, too. In fact, Travelocity, you cannot get a plastic card on their website anymore; all you can get is a digital. And, of course they don’t have any stores in the real world; it’s all online.

GR: This is making a lot of sense. Let me ask you something.  I saw CVS in there, which struck a nerve with me because CVS was one of the first to do the prepaid malls on a widespread basis. Does this compete with that?
DS: We think it’s complementary. We think it’s highly complementary, and CVS has been a great partner. The digital gift cards are outselling the plastic cards online by a factor of two to one.

GR: Well, the reason it struck me is because CVS obviously has a big business selling peg-based cards.
DS: Yes.

GR: So they obviously don’t see this as a killer technology to kill the prepaid malls, I wouldn’t think. Otherwise they’d stay away from it.
DS: It’s a complementary service.

GR: This is all very interesting, but what is next?
DS: Do you participate in reward programs at all?

GR: I rack up the credits. But I never seem to be able to use them.
DS: Right. Well, imagine for a minute you want to use your Bank of America points, you know, to take your family to dinner or buy a drill at the Home Depot. Now, you will be able to download the [reward certificate] instantly, print it out, and walk into the store or wave your phone in the store.

GR: Interesting. Very interesting.

David Stone is CEO and Co-Founder of CashStar.  Visit CashStar online at www.cashstar.com.