A digital gift card (also called an e-gift card) is essentially a prepaid card that you send or receive online. Digital gift cards are delivered electronically to a recipient (by email, text, or in-app). It comes with a unique code that can be safely used for online purchases or in-store transactions.
If you're a restaurant or retailer thinking about offering digital gift cards, here's what you need to know.
Types of Digital Gift Cards: Email, SMS, App-Based, Open-Loop vs Closed-Loop
Not all digital gift cards are delivered the same way. Businesses can choose the format that best fits how their customers already interact with them.
Email Gift Cards
Email remains one of the most common types of digital gift card. Customers purchase a gift card on the company’s website or mobile app, and the recipient receives a digital gift card directly to their inbox.
Benefits of email gift cards include:
- Instant delivery
- Scheduled delivery for birthdays or holidays
- Simple set up for businesses
SMS Gift Cards
SMS delivery sends gift cards directly to a recipient’s phone through text message.
SMS gift cards work especially well for:
- Mobile-first customers
- Last-minute gifting
App-Based Gift Cards
Some businesses offer gift cards directly through their branded mobile app.
This can create a more connected customer experience since it allows customers to:
- Store gift cards and rewards in one place
- Reload balances
- Receive offers and promotions
Open-Loop vs Closed-Loop Gift Cards
Gift cards also fall into two broader categories: open-loop and closed-loop. Closed-loop gift cards can only be redeemed at a specific business. For example, a $50 gift card purchased from a local restaurant can only be used at that restaurant or within that brand's locations.
Open-loop gift cards, on the other hand, can be used at multiple businesses and often operate through payment networks. For example, a prepaid card carrying a major payment network logo can be used anywhere that payment method is accepted, whether that's a restaurant, clothing store, or online retailer.
For most restaurants and small retailers, closed-loop gift cards are typically the preferred option because they keep spending within the business and encourage repeat visits.
Digital Gift Card vs Physical Gift Card
|
Feature |
Digital Gift Card |
Physical Gift Card |
|
Delivery |
Sent instantly through email, SMS, or apps |
Given in person or delivered physically |
|
Purchase timing |
Works well for last-minute purchases |
Often purchased in advance or in-store |
|
Inventory requirements |
No physical inventory needed |
Requires card stock and inventory management |
|
Customer experience |
Easy to store on a phone or email account |
Provides a tangible item customers can carry or gift |
|
Redemption |
Can be redeemed online, in-store, or both depending on setup |
Typically redeemed in-store, though some support online use |
|
Branding opportunities |
Can include digital designs and messaging |
Can create a more physical branded experience |
|
Risk considerations |
May depend on device access or email delivery |
Can be lost, damaged, or misplaced |
|
Best fit for |
Businesses prioritizing convenience and digital experiences |
Businesses wanting a physical gifting experience |
How Digital Gift Cards Work at the Point of Sale
For the customer buying the e-gift card:
It’s an easy process. They visit your website or gift card page, choose the amount, enter the recipient’s email or phone number, and pay. It only takes a few minutes. You can usually choose a design for the gift card, add a message, and schedule delivery for a specific date.
For the recipient redeeming it:
They receive an email or text with their unique code. When they’re ready to make a purchase, they show the code at the register in-person or enter it during checkout online. The staff scans the code, the system checks the balance, deducts the balance, and the transaction is completed. If there’s still a balance, it’ll be readily available for the next visit.
On the back end:
This is where your setup matters the most. To make this process seamless, your gift card program connects with your POS system and tracks transactions in real-time—when a card is issued, the gift card amount, and when it gets redeemed. A well-integrated system keeps these updates ongoing and automatic, with no manual effort on your end.
The redemption process—online and in person—also has to stay friction-free. If a customer has to take extra steps to pay, like logging into an account and searching for their gift card in an app, that experience can be improved. Paying with an e-gift card should be as fast as tapping a card.
👉 Check out our guide on setting up a gift card program for your small business.
Why More Canadian Restaurants and Retailers Are Switching to Digital Gift Cards
The shift is being driven by one thing: meeting where Canadian customers are.
Most Canadians are using mobile wallets and making digital payments regularly. In 2024, over 13 billion transactions used digital payment methods, and over 66% of Canadians use their mobile devices to pay—this number is expected to grow. People in Canada are comfortable paying with their phones, and they now expect digital options.
The Canadian gift card reflects this shift well. It is valued at approximately CAD $12 billion in 2026. Digital is a growing share of that. Convenience and instant delivery are the top drivers—customers are increasingly preferring a digital gift card for everyday payments, beyond gifting occasions.
There are several benefits to offering digital gift cards:
- Always-on sales: Digital gift cards can be purchased 24/7, even when your store or restaurant is closed.
- Lower operating costs: There are no printing costs, shipping fees, or physical inventory to manage.
- Faster customer experience: Customers increasingly expect instant transactions and mobile-friendly experiences.
- More customer data and insights: Digital systems can provide reporting on purchases, balances, and redemption trends.
- Stronger customer retention opportunities: Gift card recipients frequently become repeat customers, creating additional opportunities to drive future visits and loyalty.
- Improved security and fraud monitoring: Modern digital gift card platforms often include security features such as unique codes, transaction tracking, balance monitoring, and fraud detection tools that can help businesses reduce risks associated with lost cards, unauthorized use, and common gift card scams.
While physical gift cards definitely remain valuable, if you’re only offering physical cards, you have an opportunity to reach an even bigger segment of your market by expanding into digital gift card offerings.
Can You Offer Both Digital and Physical Gift Cards?
Yes, and for most restaurants and retailers, that’s the right call.
The customers who want to wrap their gifts and hand them over at a birthday dinner aren’t going away. Neither are the ones who want to send a gift card to a friend across the country in under five minutes—and these aren’t different customers, just different situations.
Your business needs the right system to manage both in one place: keeping amounts accurate, making sure your POS system integrates seamlessly, and giving customers a hassle-free experience that makes them come back—regardless of which gift card format they used.
DataCandy is a gift card platform purposely designed for restaurants and retailers. It gives you a platform that sells, manages, and redeems both digital and physical gift cards—all connected to your existing POS system.
👉 Check out how ZIBO! Restaurants expanded their customer base with DataCandy’s gift card program.
The Bottom Line
A digital gift card is a faster, more flexible version of something customers already understand.
For customers, the appeal is transparent: instant delivery, easy to send to anyone, and no risk of losing it at the bottom of a bag. For businesses, the advantages translate to lower cost, better tracking, and the ability to generate revenue around the clock.
If you're a restaurant or retailer running on physical cards only, or thinking about launching a gift card program for the first time, adding a digital option isn't a big operational lift. With the right platform, it fits into what you're already doing.
See how DataCandy's digital gift card program works.
Frequently Asked Questions
What is a digital gift card?
A digital gift card is a prepaid card that's delivered electronically (usually by mail, text or in-app) instead of a physical card. The recipient gets a unique code they can use at checkout, either online or in-store.
Do digital gift cards expire in Canada?
No. Most Canadian retail gift cards do not expire. By law, gift cards cannot have an expiration date—but there are some exceptions (like promo cards or prepaid cards). If in doubt, check the terms and conditions of your gift card.
Are digital gift cards safe?
Yes, digital gift cards (e-gift cards) are generally safe when bought from a trusted brand and official websites. To stay safe, only buy from legitimate sources and avoid sharing your gift card code.
How do digital gift cards work?
Digital gift cards (e-gift cards) are prepaid codes that are delivered electronically, usually by email or text message. When someone purchases a digital gift card, a unique code or barcode is generated and sent to the recipient.
Can I use digital cards in-store?
Yes, most businesses generally accept digital gift cards in-store, but it depends on the retailer. It’s best to check the terms and redemption rules before use. If the business supports in-store redemption, you can usually show a barcode, QR code, or gift card number on your phone for scanning or manual entry at checkout.
How do digital gift cards work for a small business?
Digital gift cards (e-gift cards) work the same, no matter the size of your business. As a small business owner, you have to choose the right gift card software to set up. The right system enables your business to manage and sell gift cards to customers. It also integrates with your POS to facilitate the process of redeeming gift cards. Learn more about gift card programs for small businesses.
Can I sell digital gift cards through my POS system?
Yes, you can sell digital gift cards directly through your POS system when it’s integrated with a platform like DataCandy, which enables businesses to issue, send, and manage digital gift cards in real time at checkout, with balances automatically tracked and redeemable in-store or online.