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The Green Sheet Online Edition

December 27, 2010 • Issue 10:12:02

Has gift card industry reached turning point?

sellingprepaidFor the holiday season, First Data Corp. analyzed its closed-loop prepaid card segment and reported in its Nov. 2010 SpendTrend report that consumers are adding value to reloadable, merchant-branded gift cards more often, but are not adding more money per card. It may be one indication that it is time for gift card providers and merchants to rethink how they market gift card programs.

The SpendTrend report on gift cards – part of First Data's overall monthly report on the payments industry – compared September 2009 data concerning consumer use of gift cards (including incentive and promotional cards) to the numbers in the following month, as well as a year-over-year comparison of October 2010 to the previous October.

The results were that the dollar volume growth in card activations was up 2.7 percent in October 2010 from the previous October, but more than 6 percent lower than in the previous month. Additionally, First Data found that consumers are reloading gift cards more frequently. In October, overall reload growth stood at 25.2 percent, up from 20.7 the previous month.

However, average ticket sizes were down across the board. In the three combined vertical markets covered in the report – specialty retail, casual dining and quick service restaurant – the average ticket in the area of card activations went down 8 percent year-over-year. During that same time frame, the average ticket when cards were redeemed was down 9.2 percent.

And while the average ticket when cards were reloaded was up half a percent in October 2010 compared to the previous month, it was still down 6.9 percent year-over-year. Michael Hursta, Vice President of First Data Prepaid Services, summed up the data as showing that transaction volumes are up but dollar volumes are down.

Maturity breeds change

Hursta said the data suggests the gift card market has reached an "inflection point." After 15 years in existence, the closed-loop gift card space has matured, with product familiarity high, he said. As growth of the market slows, card providers and merchants will need to change strategies to reignite consumer demand.

"It's time now for this space to get shaken up a little bit," Hursta said. "It requires some new creativity. And so as a merchant, if you've got a program, what you need to do is you need to find new ways to make that program interesting to consumers."

Hursta recommends refreshing how cards are merchandised, changing designs and focusing on the cards' seasonal aspects. Also, if merchants aren't selling gift cards online, they should, Hursta advised. "There's a lot of great technologies for personalizing cards and making it easy to send either physical cards or virtual cards to loved ones," he said. "And so if they're not playing in that space, they need to be."

Call to arms

Hursta believes gift cards should be sold not only via merchants' e-commerce sites but also through social networking sites. As consumers become increasingly "wired," they spend more and more time online at places like Facebook and MySpace. He mentioned how First Data is now integrated into Facebook with its eGift Social application, which allows Facebook users to give virtual gift cards to friends. The cards are redeemable online or in brick-and-mortar stores.

"Consumers still love gift cards," Hursta said. "It is the number one gift that is out there as a category. But what I would say is that it is a wake-up call. The days of high growth aren't coming back unless the merchant community and even processors like ourselves at First Data actively work to make gift card programs better. Then consumers will be re-excited by them.

"And so I say it's a kind of call to arms to say we all enjoyed great growth of gift cards for several years. If we want to regain that, we need to become more aggressive, more creative and do some new things." end of article

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