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The Green Sheet Online Edition

July 22, 2013 • Issue 13:07:02

Gift cards remain a strong product category

sellingprepaidThe Retail Gift Card Association released a consumer gift card attitudes survey that reported consumer confidence in gift cards continues unabated. The survey conducted online in May 2013 by SurveyMonkey reported that 71.3 percent of over 1,000 respondents ranging in age from 18 to 55 feel very satisfied when they receive gift cards and 91.4 percent said they plan to give one to three retail gift cards in the next three months.

However, RGCA Executive Director Rebekka Rea said there is still room for improvement. "There's still confusion in the marketplace," she said. "There's confusion from regulators and legislators about the differences between prepaid products."

The main distinction that needs to be drawn involves expiration dates. Rea said closed-loop, retailer-specific gift cards do not come with expiration dates; but open-loop, network-branded cards still do. She noted that open-loop cards, such as Visa Inc.-branded cards that can be redeemed at merchants who accept Visa, have expiration dates as a way to make a profit from leftover funds on the cards.

On the other hand, closed-loop gift card issuers don't require that revenue because their programs pay for themselves, and then some. "Unlike the retail-branded cards, the closed-loop [cards] are able to recoup the investment in packaging, marketing and merchandising that card," Rea said. "When people commit to redeem it, they usually redeem the card for about 26 percent above the value of the card."

Rea believes open-loop card providers need to charge fees to make a profit, but should eliminate expiration dates. That way, consumers can be assured that "the balance on that card when they buy it is going to be the balance on that card in six months if they haven't used it," she said.

Antidote to economic woes

The RGCA research revealed that consumers maintain a commonsense approach to how they use gift cards. Only 30.6 percent of survey respondents would purchase something with gift cards they would not normally buy, which means almost 70 percent of respondents do not make frivolous purchases with the cards.

"I think that's really indicative of where we are with the economy today," Rea said. "And I believe that's going to continue, at least for awhile, where consumers are really valuing every extra dollar that they have any way that they can get it."

Gift cards are therefore being used mainly for the purchase of necessities, not luxuries. Especially popular are gift cards to department stores and big-box retailers, because they offer diverse product selections. "If you get a Walmart or a Target gift card, you can get anything under the sun: clothes, shoes, groceries, electronics," Rea said. "So those cards have really been popular the last couple of years and will continue to be."

Tied into this trend is the increasing popularity of home improvement cards. RGCA's survey found that 28.6 percent of respondents plan to give home improvement-specific gift cards to newlyweds this summer. "When you get the showers happening and you get your bridal gifts, you may get five toasters," Rea said. "So to be able to get a gift card and choose a gift is becoming more commonplace within the wedding/newlywed segment."

Getting in on the bonanza

Rea expects gift cards to continue to grow in popularity because they meld choice with convenience. Adding the online and mobile channels for the delivery of virtual gift cards will only enhance that dynamic. "There's really been a sort of shift in some ways from the traditional, classic gift card to new methods of delivery via social media and mobile devices," Rea said. "And I think that's going to continue to attract a whole new segment of consumers who want to send and redeem these cards."

ISOs and merchant level salespeople can partake in the ongoing gift card bonanza by taking on the role of consultants, rather than mere suppliers, of gift card programs for merchants, according to Rea. In the retail sector, the so-called Great Recession affected small businesses the most, with a wave of bankruptcies causing negative press from eliminated gift card programs that left cardholders with useless gift cards.

With new federal regulations in place to ensure that outcome does not recur, merchant service providers can leverage regulation compliant gift card programs as a value-added service that benefits mom-and-pop retailers. "If you can go into them and show them that you are providing a platform for them to offer gift cards and also solutions for the full package, I think that will go a long way," Rea said. end of article

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