FORTUNE — It may be better to give than to receive, but no one said the process was easy. Hence the rise of the gift-card industry, which accounts for a whopping $118 billion annually. At some point, bestowing a plastic card was deemed more personal than giving cash.
The online equivalent, e-gifting, is a smaller phenomenon but one poised to reach $10 billion annually by 2016, the advisory firm CEB TowerGroup predicts. “E-gifting and [peer-to-peer] innovations add a new dimension to the market, which means more flexibility for buyers and recipients,” said Brian Riley, senior research director at the firm.
Right now, most online gifting approaches simply digitize the process rather than addressing the sorts of concerns that make gift-giving tough, like knowing someone’s favorite shade of blue, spending just enough money without going overboard, or guessing correctly about the right size without creating waves if something is too big or small.
One unique startup focused on making the process easier for both retailers and consumers is Smartgift, which hails from Brooklyn, N.Y. The technology appears as an alternate checkout option on a retailer’s e-commerce site. All the gift-giver needs is the recipient’s e-mail address to arrange for a present — they don’t have to guess about sizes, styles, colors, or other personal preferences that can paralyze the process. The actual price of the gift is masked, plus the sender can “wrap” the present, so that the reveal is still part of the process.
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“Men in particular get stressed out about getting the wrong gift, the wrong jewelry. This takes the anxiety out of long-distance gift giving,” said Christine Seib, e-commerce conversion manager for Mossanite.com, the online sales site for Morrisville, N.C.-based gemstone company Charles & Colvard.
The company began using the Smartgift platform during the holiday 2013 retail season; it took about two weeks to add a “give as gift” button to its existing site, Seib said. Since that time, the company has seen an appreciable uptick in the number of customers using this checkout option: some customers that gave gifts during the holidays have even scheduled more transactions for future dates, she added.
Smartgift is the brainchild of co-founders Monika Kochhar and Bernd Strenitz, who sold their previous startup Guguchu, a promotions and merchandising platform for musicians, to The Orchard in 2012. Kochhar studied the psychology of gifting while earning her economics degree. “When people buy for themselves, it’s not the same as when they buy for others,” she said.
Retailers that use Smartgift as a checkout option are reporting reduced e-commerce shopping cart abandonment rates — 27% lower on average, according to data gathered by the company on behalf of its retail customers.
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What’s more, they’re reporting an uptick in cross-selling: 14% of gift recipients opted to upgrade gifts they received, when retailers gave them the option to swap up or switch to another option entirely. The recipient still doesn’t see the original price paid, they just see the differential for a different item if there is one. Among Smartgift’s early customers, more than 70 percent of recipients exchange their gift entirely before it shipped, the data show. This also helps retailers manage their return rates.
“It’s a way of getting someone ‘into the store’ where they can shop more,” Kochhar said. “Not only are you creating a happy customer, you are getting them to spend more money.”
It generally takes two to four weeks for a retailer to integrate Smartgift’s checkout option into an e-commerce site. There aren’t currently setup or installation costs; Smartgift takes an undisclosed percentage of the transaction.
Other companies tackling the online gifting challenge include Jifiti, a Boston-based social-gifting mobile app developer that so far has received $3.5 million from investors including massive mall operator Simon Property Group. The company in January released a custom app for the IKEA Portland store; shoppers can use the app to scan items and create virtual gift registries. Groupon is also dabbling in the space with digital gift vouchers.
But Smartgift’s approach may be the the only one that lets a gift-giver send a long-distance present using little more than a verified e-mail address to initiate the transaction. “The customers and the e-tailer are two strands of the DNA, and they really need to have a better conversation,” Kochhar said. “Technology is gluing them together.”
