Gift Cards Get New Lease on Life as Branded Currency (With Rewards)

In the digital age, rewards for consumers who spend on credit cards are everywhere, from airline miles to cash back on groceries.

However, merchants are missing out on the opportunity to reward consumers who use their debit cards — one of the most popular and relied-upon payment methods.

In an interview with PYMNTS, David Metz, founder and CEO of AdTech company Prizeout, said “branded currency” — currency that can be attached to digital gift cards — can reward debit card users, and ultimately, foster consumer loyalty to the merchant.

Credit Union Members Often Opt for Debit

Debit card usage is popular among credit union members. According to Metz, “many don’t use credit cards, either because they don’t qualify or because they don’t want the temptation of spending money that they don’t have.”

Historically, rewards were offered on debit cards. However, in the wake of the Great Recession and the Dodd-Frank Act, interchange got slashed, and many financial institutions stopped offering this perk.

“It simply didn’t make financial sense for the financial institutions to offer them anymore,” Metz said.

The Prizeout model allows consumers to get more purchasing power on their transactions via digital gift cards, he said. At any given time, Prizeout can analyze consumer-level data and show relevant merchant offers to debit card users. Metz noted that Prizeout only shows up to 50 offers at any given time to each consumer, curated to the individual based on interest and location.

“We may know that a member loves ordering DoorDash or shopping at Lululemon,” he said. “So those 50 digital gift cards are all brands that the consumer either has previously shopped or are similar to their buying habits.”

The offers are also dynamic, changing all the time. The digital gift cards, he told PYMNTS, enable consumers to get up to 20% additional purchasing power. For example, a consumer who goes onto their online banking platform and buys a gift card to, say, Home Depot, can get up to $120 rather than $100.

“By making that purchase through their online banking before they go to Home Depot, they’re being rewarded with an extra incentive,” said Metz. “In this case, everyone wins.”

The consumer is rewarded, the financial institution benefits by growing its noninterest income, and the merchant winds up acquiring a new customer or getting a repeat sale from a loyal customer.

Merchants Able to Close the Deal

Metz told PYMNTS that while there’s a popular belief that gift cards are “free money” for the merchant, the reality is far different. After a period of several years (time frame varies by state), if a gift card is not used, the merchant must pay the gift card’s value back to the state.

“It’s considered lost property,” said Metz. “It actually sits on a liability on the books for the merchant.”

Because Prizeout only deals in digitally delivered and enabled gift cards, he said, the cards are not lost at the bottom of a drawer, and merchants can fully realize the purchase.

The flexibility of the branded currency model helps merchants foster long-lived customer relationships, which is more cost effective than trying to acquire customers and tracking impressions and clicks, he said.

For the merchants and the financial institution, there’s value in the fact that the gift card “lives outside the rails” of traditional interchange-driven fees, creating a virtuous cycle of monetization that benefits all stakeholders — especially across verticals/use cases such as online gaming and earned wage access, he said.

“People assume that gift cards are for gifting, and not for self-use,” said Metz, “and once we see the person get over that [mindset], our retention and our adoption prove to be very strong — because everyone loves free money and having more purchasing power.”