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Mobile gift cards can give small businesses an edge

Mobile gift cards present merchants with an opportunity to gain an edge over big box competitors.

In fact, Square (which has built its business on helping small merchants accept payments), threw its weight into the mobile gift card market in December when it announced it would allow users to "treat" their friends to experiences at local shops and eateries by sending digital gift cards via the company's mobile app.

Mobile gift cards can make a big difference to a small merchant's bottom line, says Ray Clopton, president of the Boulder, Colo.-based LocalGiftCards.com, a company that helps small businesses to enter the digital gift card market.

"Simply put, mobile gift cards generate more gift sales," Clopton says. "Mobile gift cards are an easy and fast way to send a gift to anyone."

Giving customers more options for sending gift cards "at any time of day or night generates more sales because it is so convenient for the customer," Clopton says.

Here's what you need to know about digital gift cards -- and why your business may want to consider them. mobile-gift-cards

How mobile gift cards work
From your customers' perspective, sending a mobile gift card is generally as easy as sending a text message. Senders can purchase gift cards through their smartphones, tablets, computers and social media accounts and send them as text messages, emails or social media messages directly to the recipients.

The digital nature of the gift cards means that the recipients can then redeem them at the appropriate business by scanning the screen of their smartphones (or entering the card number, in some cases) at checkout. In the case of Square's mobile gift cards, the "cards" can be stored in the recipients' mobile wallets until used.

When purchasing a mobile gift card online through LocalGiftCards.com, for example, a customer selects the gift amount, enters the recipient's cellphone number along with a brief, personalized message and then pays for the gift card, Clopton explains.

"The mobile gift card number is sent to the recipient by text message," Clopton says. "The recipient can then use the text message with the gift card number for purchases." As for merchants, selling and accepting mobile gift cards shouldn't take much of an investment in infrastructure. If you already use a mobile payments platform (such as Square), incorporating mobile gift cards is pretty seamless. You'll simply need to enable the setting for selling gift cards on your Register iPad app. Your Register app will then automatically detect the gift cards in your customers' wallets when they enter your store -- you can also use the Register app to scan the gift card's QR code if the customer prints it out or has it stored in another app (i.e., Apple Passbook).

If you're starting from scratch, businesses such as LocalGiftCards.com and Transaction Wireless can help you sell digital gift cards on your website or via social media.

"Our system is compatible with most POS systems and credit card terminals, so merchants rarely have to purchase any new equipment," Clopton says.

Tips for going mobile
Clopton reminds small merchants that training employees how to process mobile gift cards is a vital step and takes only a few minutes.

"Using a mobile gift card is a new experience for most customers, so you want to make sure it is positive," Clopton says "Make sure that every employee knows how to handle a mobile gift card at the point of sale."

Jumping into the mobile gift card world is becoming more vital for small merchants, as customers may soon expect mobile gift cards as much as they expect plastic ones.

"I compare the rise in popularity of email and mobile gift cards to the introduction of plastic gift cards in the late '90s," Clopton says. "Plastic gift cards replaced paper gift certificates because they were much more convenient for consumers to purchase. Digital gift cards have introduced a new level of convenience and that is the driving force behind their rapid growth in popularity."

These days, customers are often surprised when they find out a business doesn't offer regular gift cards. If mobile gift cards become just as widespread, not having them as an option might cause customers to take their business elsewhere, including to larger competitors.

"Small business owners are often unaware of how quickly consumers are embracing digital gift cards," Clopton says. "In the week leading up to a major holiday like Valentine's Day, Mother's Day, Father's Day or Christmas, about two-thirds of the online orders that we process are for digital gift cards. The national chains are very much aware of this trend, but small merchants are only now beginning to recognize that a major transition is taking place."

See related: Mobile payment app cheat sheet: A guide to merchants' many options

Published: January 22,2020

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