GiftRocket, a y-combinator startup that launched this month looks to revolutionize the online gift cards space. With GiftRocket you are sending an electronic gift card to someone’s smart phone that they can use wherever they like. The virtual gift card can be used at any location, because GiftRocket relies solely on a phone’s GPS . At this time they do not have deals with any merchants or retailers, which could lead to potential legal problems in the future. However, GiftRocket has high expectations as their product completely cuts out the traditional gift card payment processors like First Data or Valutec.
The model is somewhat confusing, so I will attempt to explain it as best as possible in the space below.
How Does GiftRocket Work?
- You send a $50 GiftRocket for Fancy Seafood to Alex for his anniversary.
- When Alex and Courtney arrive at Fancy Seafood, he opens the GiftRocket link and clicks redeem.
- GiftRocket will then deposit $50 into Alex’s paypal account.
They do a better job of explaining it on their website with a cool monkey infographic.
The question I’m left asking is, “Who would really want to do this?” The gift rocket process seems like an overly complicated paypal transfer. When Alex goes to redeem the GiftRocket, he still has to spend the money to cover the bill. One of the things people enjoy the most about gift cards is that when you do go to redeem them, that amount is deducted from your total bill. You’re eliminating one of the main benefits from gift card redemption when you have to pay the full amount. I understand that you are refunded through paypal, but to transfer that money back into your checking account will cost you 2.9% of the balance + 30 cents in fees [source].
If Alex doesn’t want to buy anything at the restaurant, he doesn’t have to. A simple click of redeem on the GiftRocket link will result in the full balance being deposited into his or her paypal account. This is because GiftRocket isn’t associated with the merchant in any way. So in actuality, you do not have to redeem anything in order to transfer the paypal funds into your account. If there is one thing that I have learned from my experience in dealing with gift card exchange is that cash is king. People almost always prefer having cash over a regular gift card.
As a startup we exist to solve a problem. GiftRocket looks to solve the distribution for the traditional gift card, but they have created product that you actually do not need to redeem. The merchant does not benefit from the use of the card, while GiftRocket and Paypal collect money off of the transaction fees. Developing the application around the smartphone market makes a lot of sense, but to me the incentive to buy and use GiftRockets just isn’t there. Spending money only to be reimbursed later seems to completely dismiss the whole purpose of a gift card. It will be interesting to see how the company evolves as they are y-combinator backed so we can all expect to see exciting things from them in the future.
Response from GiftRocket Co-Founder Nicholas Baum who thanked us for covering his company.
A few clarifications:
1) Transferring from PayPal to checking is free. The source quotes irrelevant rates.
2) GiftRocket is great for merchants. We drive foot traffic and sales. See http://www.giftrocket.com/gift-card-program
3) GiftRocket doesn’t deduct from your bill. But that means you’re free to spend as much as you like. You’ll never forget or lose your GiftRocket. You don’t need to carry another card. And maybe most importantly, you won’t ever be stuck with store credit at a business you don’t like.
4) GiftRocket solves real problems. Try buying a gift card for a small business for your friend across the country. It’ll be either impossible or inconvenient. GiftRocket works, and it only takes a minute.