Gift card use declines despite holiday buying
April 5, 2010
• Recession is blamed
• Market rebound predicted for 2010
Thanks to the recession, use of prepaid and gift cards in the United States dropped from 66 percent in 2008 to 61 percent in 2009, according to a report from Javelin Strategy & Research of San Francisco.
The decline in gift card sales and value began to turn around by the end of 2009 and will regain momentum in 2010 along with prepaid products, the research company predicts.
Companies that focus on the right features, messages and market trends can compel more consumers to buy more stored value and gift cards, the report says.
“As an example, while overall use dropped in 2009, in the online channel pay-before products such as prepaid and gift cards are flourishing,” says Mary Monahan, managing partner and research director. “Government regulations that restrict gift card fees and expiration dates favor consumers and are vital to building the trust that can build adoption and use. Lower costs and enhanced functionality are luring consumers back and boosting the volume and dollar value of cards they purchase.”
Despite last year’s drop, Javelin forecasts that prepaid usage will more than double by 2014 and gift cards to more than triple -- the latter expected to attain $6 billion five years into the future.
Other highlights of the report:
• Overall, 56 percent of consumers used a gift card in the past year, says Javelin. Less than half that many used a prepaid card.
• More than one in every five American households lacks a checking and/or savings account. One in five underbanked consumers have used a prepaid card in the last 90 days, making prepaid a way to access unbanked and underbanked consumers.
• The demographic of consumers receptive to prepaid and gift cards is evolving as merchants and service providers offer innovative products such as payroll and travel, new access methods such as Internet and mobile devices, and options such as micropayments and teen spending controls.
• Industry consolidation of the fragmented prepaid and gift card market is likely to accelerate throughout 2010, elevating the importance of this market for merger and acquisition specialists. An increase in vertical integration may also occur, with consumers and businesses preferring one-stop shop, end-to-end providers to the many niche players participating in the market today.
The report is based on Javelin’s latest annual payments survey of 3,294 consumers, vendor interviews and Javelin experts.