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The Green Sheet Online Edition

January 14, 2013 • Issue 13:01:01

Gift cards remain prepaid powerhouse

sellingprepaidIt can be argued that while gift cards are the foundation of the prepaid card industry, the product has plateaued as a growth driver for the industry. However, recent First Data Corp. research suggests that gift cards not only retain and multiply their value for the industry and retailers, but also that the industry staple is poised for future growth in the area of reloads.

In the December 2012 white paper, Consumer Insights into the U.S. Gift Card Market: 2012, the acquirer and gift card processor revealed that closed-loop, retailer-specific gift cards are actually gaining in popularity. In 2011, 84 percent of consumers purchased the products, and 83 percent of consumers received them. In 2012, those numbers rose to 87 percent and 86 percent, respectively.

Although the average amount consumers spent on closed-loop gift cards ($42) remained unchanged from 2011 to 2012, First Data reported that consumers perceive gift cards as highly valuable. In fact, gift cards are apparently seen as more valuable than actual gifts. First Data said 93 percent of consumers prefer a $25 gift card to a gift valued at $25, and 85 percent prefer a $30 gift card to a similarly priced gift.

While the percentage of consumers who would choose gift cards diminishes as the monetary value of actual gifts increase, gift cards still retain their allure. "Gift cards have such high perceived value that nearly half of consumers would prefer a $25 gift card to a present worth $50," First Data wrote.

Given that the perceived value of gift cards remains strong, it follows that retailers would share the same mindset, and for good reason. First Data said that, in 2012, two-thirds of gift card receivers spent an average of $20.79 more than the value on cards when they redeemed them. The amount of average overspend was linked to the type of merchant, with fine dining restaurants claiming more overspend ($33) than quick service restaurants ($5).

The trouble with reloads

A persistent struggle for gift card providers has been how to increase consumers' usage of reloads. First Data's research bears out that continuing problem. The company said only 9 percent of gift card users chose to reload their cards in 2012, unchanged from 2011, although consumers who conduct reloads are doing so more often. Encouraging reloading is in retailers' best interests because it enhances consumer engagement with particular brands and "almost guarantees" repeat visits to physical stores or websites, according to First Data.

The acquirer said the one merchant category where reloading has been successful is coffee shops. Forty-five percent of reloaders did so at such outlets, with 39 percent of them motivated by rewards programs to reload, First Data said.

The most notable reload success story is occurring at Starbucks Coffee Co. "Starbucks does a few different things in order to attract people's attention," said Michael Hursta, Vice President, Prepaid Category Manager at First Data. "Reward money is one of the things they have done over the years. But they've got a lot of tools – free products, invitations to try out new things in their stores, different levels of membership."

Reload rests on ubiquity

The retail locations where reloading will be most effective are places consumers visit regularly, such as coffee shops, Hursta said. He added that discount retailers and grocery stores also fall into that category – "any place that you might expect a weekly visitation by a consumer." But he believes reloading will only become a mainstream consumer practice when the marketplace is ready for it.

"I think that from a technology perspective, we will probably see another shift in the future of an increase of people conducting reloads once it becomes more generally available for people to store their cards through their phones," Hursta said.

Consumers must then be able to pay for purchases at the POS using smart phones. "The largest barrier we still see in the marketplace is the ability to accept [mobile] payment at the point of sale," he said. "There's still a lot of retailers who recognize this is the future and that mobile payments as a concept is certainly going to occur, whether or not they know the exact form, if it's going to be NFC or QR code scans. The precise technology I would say is still undetermined."

Hursta noted that many retailers have been holding off on making a capital investment to upgrade their POS systems to accept proximity mobile payments because of that uncertainty. But once the technology is in place, retailers will be able to communicate to customers that they can reload their prepaid accounts via mobile phones in-store. When that happens, "a lot of consumers will discover reloading and actually find that it is applicable to them," Hursta said. end of article

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