Understanding How Does a Digital Gift Card Works for Your Business
How does an electronic gift card work is a question more business owners are asking as electronic gifting becomes mainstream. Here's the quick answer:
The Process: How does a digital gift card work:
- Purchase: Customer buys online, enters recipient's email/phone.
- Delivery: Gift card sent electronically with unique code/barcode.
- Redemption: Recipient uses code at checkout online or shows barcode in-store.
- Processing: POS system deducts amount from card balance.
Electronic gift cards are digital versions of traditional gift cards that customers can purchase, send, and redeem without any physical card. They're delivered via email, text, or mobile app and contain unique codes that work just like cash at your business.
The numbers tell the story of this growing trend. The global gift card market is expected to reach $614.7 billion this year, with electronic gift cards representing the fastest-growing segment.
However, approximately $23 billion in unspent funds sit on gift cards in the United States alone. This represents both an opportunity for businesses and a reminder that successful gift card programs require proper management and integration with your core business systems.
Whether you're considering electronic, physical, or both types of gift cards, understanding how they work is the first step toward building a program that drives real results for your business.
What is an Electronic Gift Card and How Does It Work?
Understanding how a digital gift card works is key for any business adopting modern gifting solutions. An electronic gift card is a prepaid, electronic-only card. Instead of plastic, it's a unique code, barcode, or QR code delivered digitally that acts as a cash substitute for your goods or services.
The Anatomy of an Electronic Gift Card
With BPA, digital gift cards are issued with a unique code and managed in the same system you use to sell and redeem them: BPA POS in-store and, for restaurants, EatOnTheWeb online. This keeps issuance, redemption, balances, and reporting in one workflow.
- Unique Code: A system-generated code that holds the card's value and is redeemed in BPA POS or during EatOnTheWeb checkout.
- Digital Delivery: Typically via email when purchased online.
- Integrated Tracking: Activation, redemptions, and balance checks are handled within BPA, so liabilities and activity appear in your reports.
These elements create a simple, secure setup that is easy for customers to use and easy for your team to manage.
The Step-by-Step Purchase and Sending Process
With BPA, the flow is simple and fast. Restaurants can sell digital gift cards online through EatOnTheWeb, and staff can also issue cards in-store from BPA POS.
- Select Amount: The buyer chooses the dollar value to load onto the gift card.
- Enter Recipient Details: The buyer provides the recipient's name and email address.
- Add a Note (optional):: A short message can be included with the digital delivery.
- Complete Payment: Checkout is processed through your configured payment method.
- Delivery: The recipient receives an email with their unique gift card code and instructions for redemption.
This streamlined process lets customers purchase and send a gift in minutes. For in-store requests, staff can issue a digital code at the register and provide a printed receipt or email confirmation.
How a Recipient Redeems an Electronic Gift Card
Redeeming an electronic gift card is designed for ease in both online and in-store environments.
- Receive Notification: The recipient gets an email or text with the gift card details, including the unique code and a link to view the card.
- Online Redemption: Enter the digital code at checkout (via EatOnTheWeb).
- In-Store Redemption: Customers present their gift card or the issued digital code; staff redeem it in BPA POS, and the balance updates instantly.
- POS System Integration: BPA POS handles gift card redemptions, deducts the balance in real time, and updates sales records automatically for accurate accounting.
Electronic vs. Physical Gift Cards: A Business Owner's Perspective
From our experience working with business owners for over 30 years, choosing the right gift card type is crucial for security and brand loyalty. While electronic offers convenience, physical cards integrated into a robust POS system often provide the best control and security for many businesses.
When we discuss gift card programs with clients, it's not just about how a digital gift card works. It's about what works best for your business.
Advantages of Electronic Gift Cards
Electronic gift cards have undeniable appeal. Convenience is the main draw, as customers can purchase and send them 24/7 from anywhere. This makes last-minute gifting stress-free and instant.
They are also eco-friendly, eliminating the plastic waste and shipping impact of physical cards. For your business, electronic cards are great for reaching new customers when existing patrons gift them to friends and family. You also receive upfront profit when the card is purchased, improving cash flow. With approximately $23 billion in unspent funds on gift cards in the U.S., businesses often benefit from breakage (funds that are never redeemed).
Security and Management: Where Physical Cards Offer More Reliability
While digital gift cards are convenient, security comes from a single, integrated workflow. Electronic security risks are real and include phishing scams to steal codes, code interception, and fraudulent redemption by bots that scrape and drain card balances.
The Federal Trade Commission regularly warns about these issues; learn more from the FTC about protecting consumers from gift card scams.
This is where traditional physical gift cards, managed through a reliable on-premise system, offer superior security. With our POS system control, each card is activated at your terminal, creating a secure link to your business. In-person activation by a staff member adds a crucial security layer, eliminating pre-purchase fraud. This focus on reduced online fraud is why, for businesses prioritizing security, well-managed physical gift card systems offer greater reliability and peace of mind.
How does an electronic gift card work with your POS system?
Whether you choose physical or electronic cards, their power comes from seamless integration with your Point of Sale system. Our systems make this effortless.
- POS Integration: Sell, redeem, and manage gift cards directly from your Retail POS or Restaurant POS terminals, eliminating manual tracking.
- Real-time Balances & Reporting: Balances and activity are tracked in the BPA system so you can see redemptions and liabilities at a glance.
- Loyalty Program Integration: Combine your gift card and loyalty programs. Reward customers with gift cards or let them redeem points for card value.
- Accounting Visibility: Because BPA is built on Business Plus Accounting, gift card sales and redemptions flow into the same system that powers your POS and reporting, improving visibility into liabilities and activity.
- Flexible Formats: Use BPA custom printed gift cards for in-store, and BPA digital gift cards for online (EatOnTheWeb) or in-store redemption via code.
Implementing a Successful Gift Card Program
A successful gift card program, whether electronic or physical, hinges on seamless integration with your core business operations. Understanding how does an electronic gift card work is just the start; the goal is to implement it as a tool for customer loyalty and revenue growth.
When done right, customers get convenient gifting options, and businesses gain upfront revenue, customer data, and increased loyalty.
What Types of Businesses Benefit Most?
Gift cards are effective for businesses of all sizes, especially when used to build customer relationships.
- Retail stores use gift cards to solve the "what to buy" problem for gift-givers. Our Retail POS systems make selling and tracking simple.
- Restaurants find gift cards bring in new customers who often become regulars. Our Restaurant POS systems fully support integrated gift cards for both dine-in and online ordering.
- Coffee shops and cafes benefit from the repeat visits a single gift card generates, creating opportunities to upsell.
- Service-based businesses like spas and salons use gift cards to attract new clients who may become regulars.
- E-commerce stores naturally benefit from electronic gift cards, which eliminate shipping. Our online ordering integrations make selling and redeeming them online easy.
Choosing Between Open-Loop and Closed-Loop Systems
For most small and midsize businesses, closed-loop gift cards are the right fit. These cards are redeemable only at your business and tie directly into BPA POS for in-store sales and redemptions; restaurants can also sell and redeem digital cards online through EatOnTheWeb, with balances tracked in the same BPA system. This keeps spending with your brand and keeps reporting, liabilities, and controls in one place.
BPA provides both custom printed (physical) gift cards and digital gift cards that work with BPA POS (and EatOnTheWeb for restaurants). If you're not running the full POS, there's also a standalone gift card option. The goal is the same: one integrated workflow for issuing, redeeming, and tracking card balances.
Understanding Fees and Regulations
Gift card programs do come with costs and rules, so it helps to map them out before launch.
- Fees: Physical cards have one-time setup/printing costs (BPA custom printed cards start around $1.45 per card with a $50 first-order setup). If you need gift cards without a full POS install, BPA offers a standalone gift card option ($30/month). For restaurants, digital gift cards can be sold online via EatOnTheWeb (recent BPA pricing indicates about $1 per digital card with a 50-card minimum). BPA frequently highlights no per-swipe or transaction fees on its gift cards, helping you control ongoing costs.
- Regulations: Gift card rules (such as expiration and inactivity fees) are governed by federal and state/provincial laws and can vary by location. BPA provides the tooling to issue and track gift cards inside your POS and, where applicable, EatOnTheWeb; you should confirm your local requirements with counsel or your accountant before launch.
Frequently Asked Questions: How Digital Gift Cards Work
Are there any fees or expiration dates associated with electronic gift cards?
This is a common question, and the law is on the consumer's side. Here's a quick look at how an electronic gift card works regarding fees and expiration:
- Federal Law: The CARD Act of 2009 ensures most gift cards are valid for at least five years from the issue date.
- Inactivity Fees: Heavily restricted; typically allowed only after 12 months of inactivity.
- State Laws: Many states offer even stronger protections, sometimes banning expiration dates and fees altogether. It's important to know your local rules.
- Provider Fees: Some third-party platforms charge activation or service fees. At BPA POS, we believe in transparency about any costs associated with our integrated solutions.
Always check the terms and conditions of any gift card to understand its specific policies.
How can businesses benefit from offering electronic gift cards?
Electronic gift cards are a powerful tool for business growth. Here are the key benefits we've seen:
- Increased Sales: Gift cards provide upfront revenue, and customers often spend more than the card's value.
- New Customer Acquisition: Your loyal customers introduce new people to your business through gifting.
- Brand Awareness: Your brand gets seen in emails, texts, and mobile wallets, creating multiple touchpoints.
- Improved Cash Flow: Upfront purchases provide working capital, which is especially helpful during slow seasons.
- Valuable Data: Integrated systems like ours provide insights into spending patterns for better marketing.
- Competitive Edge: Offering modern gifting options keeps your business competitive and meets customer expectations.
What are the security considerations for electronic gift cards?
Security is a top priority. The nature of electronic gift cards requires careful attention to prevent fraud.
- Treat Codes Like Cash: A gift card code has real monetary value. Educate customers to protect it.
- Phishing Awareness: Warn customers about fake emails or calls from fraudsters trying to steal card details.
- Secure Payment Processing: Use a secure and reputable payment gateway for gift card purchases. Our integrated solutions are designed to work with secure payment processors for enterprise-level security.
- POS System Security: Your POS system must protect gift card data. Our on-premise POS systems offer superior control by keeping sensitive data on your local network.
- Fraud Prevention: Monitor for unusual redemption patterns and implement smart internal protocols to protect your business and customers.
How a Digital Gift Card Works for Your Business
Understanding how does a digital gift card work comes down to integration. With BPA, you can issue, sell, and redeem physical and digital gift cards in the same system - BPA POS in-store and (for restaurants) EatOnTheWeb online - so balances, reporting, and controls all live in one workflow.
Security and convenience go hand in hand when everything runs through BPA.
Train staff to treat codes like cash, keep issuance/redemption inside your POS, and use BPA's unified reporting to monitor activity and liabilities. That way, gift cards become a reliable tool for loyalty and repeat visits, without extra platforms or manual tracking.
Ready to launch or streamline your program? Contact BPA POS for a personalized demo or quote and see how an integrated gift card setup can support your restaurant or retail operation.
