When we first looked at the prepaid Gift Card market in 2006, we found a rapidly growing market fraught with fees, consumer risks and lost card value. In our first published review the following year, we estimated that lost value to consumers ran at nearly 10% of value; based on $81 billion in transaction loads, consumers lost $8 billion in value.
Several important developments occurred since then and the product is now well entrenched into winter holiday spending habits of US consumers. New entrants, like Wal-Mart, developed aggressive pricing models and drove down junk fees. Other companies, including Starbucks, re-engineered their business processes and added mobile features to gifting. First Data, a leading provider of card infrastructure and processing, created enabling processes that allow merchants of any size to enter the gift card market, while developers like Kony Solutions extended their mobile offerings to link gift cards to the mobile handset.
While credit and debit cards toiled with regulatory issues, prepaid gift cards actually benefited from mandates of Title IV of the Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. This brought non-financial institutions under rules similar to FSIs, extended or eliminated expiration dates and removed many junk fees. As a result, we estimate lost card value plummeted to $2 billion, substantially better than the $8 billion loss observed in 2005. Concurrently, the US Gift Card market will hit a record high of $100 billion in load volume during 2011.
We expect the market will continue to grow through the decade with three important developments taking place. First, we expect to see more mobile offers, further electronifying US payments. Second, we anticipate the market will form into three segments based on use (gift giving, savings and B2C marketing and incentives). Finally, we project prepaid cards in general, the segment broader than gift cards, to surpass $1 trillion in US load volume by 2021.
Access our recent research, Gift Cards 2011: Coming of Age in a World of Chaos, to learn more:
Additional Research:
Charred Card: Private-Label Gift Cards Stumble in a Weak Economy (ExecutiveBoard.com * TowerGroup.com)
Gift Cards: Still Better to Give than Receive (ExecutiveBoard.com * TowerGroup.com)
New Regulations Set to Wipe Out Gift Card Junk Fees and Reposition Market (ExecutiveBoard.com * TowerGroup.com)
Gift Cards: How to Keep Them from Becoming Drift Cards (TowerGroup.com)
on 02/27/2012
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