February 4, 2004, 12:00 AM

The e-certificate

(Page 3 of 3)

Gift cards are popular with large retail chains that want to integrate online and store sales efforts as much as possible. With these gift cards, retailers sell the pieces of plastic at their stores and online. The value of the card is not retained in the card itself, but rather in a central database that can be accessed both by swiping the card in a point-of-sale device in a store and by inputting a number at Internet checkout. In either case the amount of the purchase is deducted from the amount stored in the database. Analysts say that with a well-integrated program, a customer should be able to use a $100 gift card to make a $40 purchase in a chain’s store in the morning, make a $30 purchase from the same chain’s Internet site in the afternoon and still have $30 to spend at either place later on.

The concept is similar with virtual gift certificates, except there is no plastic card or paper certificate. Shortly after a gift buyer purchases a virtual certificate online, the recipient gets an e-mail message with a certificate number and a password. When the recipient goes to make a purchase at the retail location that issued the certificate, he or she types in the certificate number and password and the value is applied. In most cases, retailers can reissue the certificate if the recipient accidentally deletes the e-mail message. E-mail certificates are popular with last-minute shoppers because the recipient can receive the certificate the same day, whereas it typically takes several days to process and mail a gift card.

Prior to the introduction of the plastic gift cards about ten years ago, many retailers issued paper gift certificates. But with these certificates, the value was actually held in the paper. If the customer lost a certificate, for example, the value was gone. And when a customer redeemed some of the value from a certificate, the retailer had to either give cash back for the remaining value or issue a whole new certificate for a lesser amount. With the plastic cards, the value sits in the computer database and is drawn down as the card is used. Many of the cards can also be reloaded with additional value once the original value is diminished.

With paper certificates, it would be nearly impossible for an Internet retailer to accept the certificates short of having the customer mail them in. And even then, the retailer would have to withhold the goods until receiving the certificate or risk losing a portion of the value of the goods, making the redeeming of paper certificates too cumbersome or risky for Internet retailers. “But with gift cards, the value is held in a central database so all a retailer that wants to integrate its gift card program has to do is link the card database to all of the sales operations it supports,” says Bruce Cundiff, payment and transactions analyst for Jupiter Research.

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