Will virtual gift cards mean the end of plastic?

Did you give or receive a gift card as a present this past holiday season? Based on Consumer Reports surveys, that card has a 25 percent chance of ending up unused for another seven months.

Such unused gift cards—about $2.5 billion worth in 2010—are bad for consumers and merchants, which can't count the gift card towards sales revenues until the cards are actually used.

But according to a report today in Bloomberg BusinessWeek online, the retail industry might have an answer to eliminate unused plastic gift cards: Electronics payment systems with "virtual" cards.

These electronic payment networks—PayPal, for example—allow consumers to create an Web account funded by personal checking accounts, credit and debit cards. Once funded, these electronic wallets can be used to pay for purchases (online and at physical retailers) as well as to "send" others money electronically. American Express's Serve system, introduced yesterday, is another such electronic payment scheme.

But several companies—from start-ups such as GiftRocket to giants such as Google—are working to extend this electronic fund transfer and payment capability to the growing number of smart phones, according to the BusinessWeek report.

The idea, according to these companies, is that users will be able to send, or gift, any amount they desire to any one else that can be used almost anywhere. These more advanced payment schemes could be tied to a smart phone's GPS-based capability. That way the phone knows when its owner is shopping at a particular merchant and then pop-up the appropriate virtual gift card it has stored within the electronic wallet or mobile payment system.

According to BusinessWeek, Google's mobile wallet system will included a virtual gift card capability when it begins testing later this year.

"The increased interest in digital payments validates consumer demand for safe, easy and flexible payment services. The online and offline worlds are blurring, and as a result, everybody wants a piece of the digital payments market," wrote Anuj Nayar, a PayPal spokesman, in an e-mail to Consumer Reports. "PayPal was built from the ground up to focus solely on digital payments...We'll continue to stay focused on defining the future of how people shop and pay-and giving our customers a better way to send and receive money."

What do you think? Have you used electronic payment systems such as PayPal? Are you looking forward to being able to pay for items using an mobile electronic wallet on your mobile phone? Or are you happy to be stuck with the other current forms of payment? (And if you have gift cards still sitting in your sock drawer, read our recent report on trading your gift cards for cash.)

A Virtual Fix for 'Broken' Gift-Card Business [Bloomberg BusinessWeek]
What it Takes to Be Great at Payments [PayPal Blog]

[CORRECTION: We updated this post to correct the name of PayPal's spokesman.--Ed.]

—Paul Eng