Virtual Redwood City-based gift card provider Gyft was recently bought out by First Data, a leading provider of payment processing and electronic commerce services. The goal of the merger is to bring digital gift cards closer to the people. Even though the terms of the transaction haven't been disclosed yet, managing director for Karlin Ventures, TX Zhuo, says the deal is a "great outcome for everyone involved.” Rumor has it that the transaction will be disclosed next month.

Why Gyft?

The 2-year old company raised more than US$6 million via its Series A funding round, with important backers including A-Grade Investments, Karlin, The Social+Capital Partnership, Google Ventures, Canyon Creek Capital, Haas Portman and others.

- Gyft's Homepage

The digital gift card business is included in a rapidly growing segment worth US$100 billion in the prepaid card market. Conventional plastic gift cards are often challenging to manage, which means small-sized business choose to avoid such hassles entirely. Gyft permits consumers to send, buy, redeem and manage gift cards digitally through their mobile phones, thus making the service a lot cheaper for both merchants and consumers.

First Data acquires Gyft

Gyft is First Data's latest acquisition. First Data acquired point of sale and mobile payments startup Clover in 2012 for US$54 million, and consequently snapped up Perka, a cardless customer loyalty startup in 2013 for a rumored amount of US$30 million.

- First Data's Homepage, featuring the news about Gyft

First Data has been trying to acquire Gyft for months, and according to company officials, that deal was finally realized. It seems that the deal will certainly help Gyft focus on developing and improving its product rather than focus on the bottom line and scrambling to sign up merchants. So instead of organizing yet another round of funding, CEO and co-founder Vinny Lingham agreed to unite with First Data. Lingham commented on the deal:

 “We have been building this relationship for a while, and the way I look at it is, once you get to the point where the relationship is good, you ask ‘Why don’t we just do this together?[...]. We started the company with a mission to digitize and transform the plastic gift card space. The inspiration for this was really Starbucks, and the question, why can’t I do that for all the merchants? But as we were going through the process, it was a lot more complicated than it seemed. Onboarding merchants was a real grind.”

Lingham additionally adds that the partnership doesn't mean the end of Gyft. It just means that the company can now expand faster and will benefit from more resources becoming available. Gyft will remain a standalone brand and the company's team will remain intact.

Track Record

Gyft achieved a lot in the last year thanks to the introduction of Apple's Passbook. At last merchants and consumers have started to understand crypto currencies and digital wallets. The company gained recognition in the Bitcoin community since its prepaid cards from Amazon and other merchants have been an extremely flexible way of trading with cryptocurrencies making it possible to buy virtually anything. Moreover, Gyft cards were largely responsible for helping a family determined to live on only Bitcoin for a whole month stay afloat. Lingham adds:

"We feel like we’ve won the space by focusing 100 percent on gift cards, while too many mobile wallets tried to go too horizontal. As a result, we nailed the customer experience,” [...].

“Facebook shut down their gift card business yesterday. And although Google recently launched their Wallet, we actually integrate with them and they view us as a solution to the gift card problem.”

- Vinny Lingham, Gyft's CEO

First Data bought Gyft with the purpose of entering the digital pre-paid card space quickly and under an already established brand. The company's SVP, Mark Putman, adds:

 “Speed to market was a big consideration for us [in this transaction]. We could have built this internally, but we think that as fast as we’re moving in digital there’s value in the speed of acquiring an existing technology a consumer audience. They have addressed a large piece of the technological problem not to mention developed a really simple and intuitive user interface. That’s one area where I think we can say to them, you’re smarter than us. Finally, Gyft is a really powerful and descriptive brand that people remember and relate to.”

First Data claims to be the world's leading card processor, with more than US$1 trillion processed card transactions annually across 3,500 financial institutions and 6 million merchants. The company dominates the groceries and gas categories, processing 80% of all transaction types in the mentioned markets.

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