5 ways gift cards got big in the U.K.

March 28, 2019 10:45 AM

The U.K. prepaid gift card market is experiencing strong growth among consumers who buy them as gifts and for self-use, as well as among businesses that purchase them for customer loyalty programs and as employee incentives.

The U.K. gift card market is expected to reach US$13.1 billion (about £10 billion) in transaction volume by 2020, up from US$8.6 billion (about £6.5 billion) in 2015 – a growth rate of over 8 percent each year, according a report from the payments market intelligence consultancy PayNXT360.

Closed loop gift cards, which can only be used at the merchant that issued the card, comprise of the bulk of the U.K. market, according to PayNXT360. However, increased consumer desire to use gift cards multiple outlets – across high street retailers and online merchants such as Amazon, is leading to significant growth in open loop cards.

In the U.S. market, consumers are split on receiving digital versus physical gift cards when it comes to rewards programs, according to a 2018 Blackhawk Network study. The study found that women, consumers under 35 and those who participated in more than one loyalty program were more likely to opt for a digital card.

In contrast, the U.K. remains firmly in the physical gift card camp, particularly among buyers. According to the First Data U.K. 2018 Prepaid Consumer Insight Study of 1,032 adults aged 18+, purchasers of gift cards preferred buying physical cards over digital ones at a rate of more than three to one (62 percent vs. 18 percent). It may just be personal choice or it could be as simple as physical cards lend themselves better to being inserted into a birthday card envelope.

Interestingly enough, when it came to the preference of receiving a gift card, the gap between physical and digital card preferences shrank considerably – 44 percent and 27 percent respectively. The nature of digital cards allows them to be sent and spent instantly and they also make purchasing with the card more convenient.

A key benefit gift cards offer to retailers is the reload feature, which can drive incremental sales and foster greater loyalty among its customers.

Two in five consumers who purchased a gift card for their own use or received one have reloaded them, primarily to enable additional purchases, based on the First Data U.K. 2018 Prepaid Consumer Insight Study. Among the different reasons for reloading a gift card, almost half (46 percent) stated that making additional purchases was a reason for them to reload the card. Participating in a loyalty/reward program was the second most important reason with 27 percent and a close third place (at 25 percent) was to receive a discount.

An important factor to recognize is that a retailer’s sales are not necessarily limited to the value of the gift card or whether the consumer reloads a card. The study found that roughly three quarters (74 percent) of U.K. gift card recipients spent over the value of the card at the retailer. The average amount spent over the value of the gift card was £41 (about US$ 53).

In First Data’s U.S. Prepaid Consumer Insight Study, it found that Americans were almost as enthusiastic about reloading a gift card with one third (33 percent) doing so.

Self-purchases of cards are an important aspect of any gift card market because it extends the value proposition of the product beyond its original intent – purchasing a gift for someone else. Sometimes consumers will purchase gift cards to reward themselves, and in other cases there may be more tangible, financial reasons driving the gift card purchase.

According to a 2018 survey of over 2,000 U.K. shoppers by the European retail currency platform Zeek Mobile Ltd.,the top reason, at 37 percent, for self-purchase was the convenience gift cards provide. The second most popular reason was to receive a discount (36 percent) followed by helping a consumer to budget their shopping (24 percent).

Whatever the reason may be driving self-purchase of gift cards, one thing is clear – it is younger consumers who are more likely to do so than older ones. In Zeek Mobile’s survey, it found that consumers between 16 and 34 years of age were most likely to self-purchase gift cards at a rate of 60 percent. It also found that a further 15 percent of these young consumers reported making the self-purchases often.

Over the years, gift cards have grown into an important element of the act of gifting because they can relieve the buyer of a great deal of stress over whether the purchaser is buying something the recipient already owns.

In the First Data U.K. 2018 Prepaid Consumer Insight Study, it found that gift cards represented over one third (38 percent) of the annual gifting budget the average consumer spends on presents, cash and gift cards for others.

While at first glance this penetration level may appear to be a significant amount, it actually lags behind U.S. gifting penetration levels. Based on First Data’s U.S. 2018 Prepaid Consumer Insight Study of 2,003 adults aged 18+, consumers said they would allocate 55 percent of their total gifting budget to be spent on gift cards.

Beyond the fact many consumers will overspend their gift cards at a retailer, there are two other benefits to retailers and gift card program managers: new e customers and increased repeat visitors. In other words, gift cards will drive more traffic, both physical and digital, to a retailer.

In the First Data U.K. 2018 Prepaid Consumer Insight Study, just over one third of consumers reported that receiving a gift card prompted them to visit a store that they normally would not have visited. Therefore, it’s in the retailer’s best interest to promote gift cards to their existing customers in the hope that they will in turn personally entice their non-customer friends and family to visit their store.

Another key benefit of retail gift cards is that they can motivate existing customers to visit the store more often. The First Data study found that almost half (44 percent) of consumers who had receive a retail gift card were prompted to visit the store more often. This is most likely to satiate the need to spend the funds on the gift card coupled with the familiarity the customer has with the store so it ends up being less of an obstacle to go more than once.