Opening New Revenue Opportunities with Open-Loop

Digital Gift Cards

Copyright 2016 CPI Card Group

Opening New Revenue Opportunities with Open-Loop Digital Gift Cards

Open-Loop Digital Gift Cards

Not a new concept but an emerging area of the

innovative prepaid industry, digital gift cards are

delivered to recipients via secure email. Consumers

retrieve a card number or barcode for redemption

instead of relying on delivery of physical cards.

Prepaid card managers and retailers have offered

solutions to procure both physical and digital

prepaid cards for some time. However, to this

point, the digital cards have been primarily

closed-loop, meaning they are specific to a given

retailer and that retailer’s payment process.

Copyright 2016 CPI Card Group

Open-loop digital gift cards can be used

anywhere and involve a payment network

like Visa®, MasterCard®, American Express®

or Discover®.

Open-loop digital gift cards, on the other hand, can

be used anywhere and involve a payment network

like Visa®, MasterCard®, American Express® or

Discover®. They are attractive because they take

advantage of several positive trends related to

consumer purchases, including a boom in e- and

m-commerce. Consumers would like additional

choices when purchasing gift cards, and companies

would like more options when deciding on gift

card programs for their customers and employees.

Adoption of open-loop digital, or virtual, gift cards is poised to accelerate,

drawing on new innovations in the payments industry. Prepaid program managers

and financial institutions will benefit from new revenue opportunities based on

the flexibility afforded to end-user consumers.

Roadblocks to Adoption

Despite the latent desire for digital gift card

offerings, technical roadblocks have limited their

potential. Chief among the challenges is the lim-

itation on digital gift card redemption. Until now,

open-loop digital cards were only redeemable

for card-not-present transactions, predominantly

either online or over-the-phone purchases. The

business rules for open-loop payment at retail

point of sale make it very difficult to use a digital

open-loop gift card for an in-store purchase. As a

result, program managers and financial institutions

have shied away from their use.

Additionally, card-not-present transactions have

limited capability for allowing two network-based

payment types, a concept called a “split-tender”

transaction. If a purchase costs more than the

balance available via the digital gift card, the card

cannot be used.

With recent developments to address these

limitations, prepaid gift card program managers

and financial institutions should investigate—or

reinvestigate—how open-loop digital gifting fits

into their programs.

One -

Two especially noteworthy aspects of emerging open-loop offerings foretell their widespread adoption:

Copyright 2016 CPI Card Group

Two - The prepaid digital cards coming into the market

connect to increasingly popular mobile payment

methods, including Apple Pay®, Samsung Pay®

and Android Pay™. Via a secure email that delivers

the digital card, consumers receive instructions on

how to deposit the funds into their mobile payment

accounts. Given the accelerating trend of brick and

mortar retailers accepting mobile payments, this

development enables physical purchases using

digital prepaid cards.

Given that in-store retailers are familiar with the

concept of split-tender transactions, enabling in-store

purchases with the popular mobile payment

schemes simultaneously enables physical split-tender

transactions using open-loop digital gift cards.

With capabilities to apply open-loop digital gift

cards to in-store purchases, prepaid program

managers benefit from a wide range of flexibility

with regard to how they engage consumers with

their offerings. By visiting one website and using

a streamlined, convenient online interface, con-

sumers can select a physical card they pick up in

person, a physical card delivered by mail, or a dig-

ital card delivered to their email or mobile phone.

Consumers can use the physical or digital cards to

make purchases online or in-store.

Apple Pay is a registered trademark of Apple Inc. Android is a trademark of Google, Inc.Samsung Pay is registered trademarks of Samsung Electronics Co., Ltd.

Applications of Open-Loop Digital Gift CardsPrepaid program managers and financial institutions can now

consider creative and significant revenue-generating offerings.

Copyright 2016 CPI Card Group

From a B2B perspective, consider how digital gifting

can integrate with increasingly popular corporate

incentive programs. A new prepaid service would

enable corporate managers to issue open-loop

digital gift cards instantly when an employee hits

a milestone, such as a safety goal or a project

completion date. Such instant digital corporate

purchases might prove more attractive than the

bulk ordering of physical reward cards.

Instant rewards also make for better consumer

incentives, and consumer-facing vendors would

prefer to offer new customers an instant gift after

switching from a competitor. Consumers are likely

to embrace the immediacy of the gift, versus having

to mail in a form for a rebate check or order a gift

card after completing the change.

Prepaid issuers offer prepaid cards directly to

consumers from their websites or mobile

applications, and prepaid program managers

can enhance their direct-to-consumer offerings

with new digital gifting options. For customers

that have existing general purpose reloadable

cards, their online accounts can be configured

to issue prepaid digital gift cards to their friends

and family.

Employee incentives Customer incentives

Direct-to-consumerFinancial institutions can also investigate creative,

new direct-to-consumer offerings based on the

immediacy of digital gifting. Their mobile banking

apps can now be enabled with a digital gifting

option. A consumer visiting the app would be

able to order a prepaid digital gift card without

leaving the app. Many banks today require consumers

to visit a branch to order a gift card. With prepaid

digital gifting, the cards are procured right from

the web or a mobile device, delivering convenience

to the banks’ customers and adding a new sales

channel to their gift card programs.

Going mobile

Looking Ahead

Today, consumers enjoy web-based flexibility in many aspects of their daily

lives. New digital gifting options bring additional convenience to the gifting

experience. As one example, prepaid digital gift cards make for exceptional

last-minute gift purchases.

Gifting options that capitalize on new technologies provide greater

flexibility and choice to prepaid program managers, financial institutions

and consumers. With the advent of new open-loop prepaid digital gifting

options, the time has come to develop and embrace new and creative

prepaid solutions.

For more information on CPI Card Group’s services for prepaid program

managers, visit the prepaid portion of the CPI website at:

http://www.cpicardgroup.com/our-solutions/prepaid/

About CPI Card Group

CPI Card Group is a leading provider in payment card production and

related services, offering a single source for credit, debit and prepaid

debit cards including EMV® chip, personalization, instant issuance,

fulfillment and mobile payment services. With more than 20 years of

experience in the payments market and as a trusted partner to financial

institutions, CPI’s solid reputation of product consistency, quality and

outstanding customer service supports our position as a leader in the

market. Serving our customers from ten locations throughout the United

States, Canada and the United Kingdom, we have the largest network of

high security facilities in North America, each of which is certified by one or

more of the payment brands: Visa, MasterCard, American Express, Discover

and Interac in Canada. Learn more at www.cpicardgroup.com.

Copyright 2016 CPI Card Group

Gifting options that capitalize on new technologies provide greater

flexibility and choice

EMV is a registered trademark or trademark of EMVCo LLC in the United States and other countries.

www.cpicardgroup.com U.S. 1-800-446-5036 Canada 905-761-8222 U.K. +44 (0)1206 845555 2016 CPI Card Group