6 ways COVID-19 has changed gift card use

October 29, 2020 11:02 AM

Even as the coronavirus pandemic hammers retail stores, the global gift card market was valued at $619.25 billion in 2019 and is projected to reach $1.92 trillion by 2027, growing at a CAGR of 14.9% from 2020 to 2027, according to Allied Market Research.

While gift cards are often marketed as an easy way to send money to friends and family, during the pandemic they're transforming into a more versatile tool of commerce that can overtake the use cases commonly associated with cash.

The next six charts reveal insights into the market dynamics of the gift card market and how it is evolving given the COVID-19 pandemic.

CORONAVIRUS IMPACT: ADDITIONAL COVERAGE

The popularity of gift cards transcends most generations, as there does not appear to be a single dominant user group; although millennials are some of the heaviest buyers they still make up only 37% of the market purchases. In all, three generations — millennials, Gen X and boomers — account for the bulk of gift cards purchases, according to data from an August 2020 InComm Consumer Pulse Gift Card Study.

However, Gen Z includes a large number of consumers who are still minors, and thus could not participate in the survey, according to Brian Parlotto, executive vice president at InComm. Teenage minors do buy gift cards for themselves and others, he said. If one factors in minor Gen Z buyers into the overall market, then the split is more likely to be evened out.

Recognizing the value a plastic gift card holds can be difficult for some adults, especially if a gift card received is not carried in a wallet or purse, but rather placed into a desk drawer.

Twenty-five percent of U.S. adults have let a gift card expire after it has been received, and another 22% have lost a gift card that was given to them, according to a Bankrate 2020 Gift Cards Survey.

Since the CARD Act of 2009 set limits on when gift cards could expire (five years) as well as limits on inactivity fees, having one expire simply means it was most likely put away into a drawer and never seen again. It should be noted that the CARD Act sets the floor for regulation and left room for state regulation on redeeming gift cards for cash and unclaimed property provisions, so in many states the value of an expired gift could be reclaimed as lost property.

The Bankrate survey found the Gen Z consumers were the most likely to lose a gift card, with 33% reported having done so. This compares with 29% of millennials, 21% of Gen X and 15% of boomers losing them. Re-gifting of gift cards is also a popular option, with almost one quarter (23%) of survey respondents having done so.

About half of U.S. adults have unused gift cards, based on data from a Bankrate 2020 Gift Cards Survey. The average value of unused gift cards and store credits is $167 per person. Additionally, 14% of consumers have between $200 to $499, and 5% have over $500 in unused funds.

When it comes to unused gift cards and store credit funds, the wealthiest have the most. Consumers earning $80,000 or more in annual household income (HHI) have $297 in unused funds, compared to $135 for consumers with $40,000 - $80,000 HHI and just $93 for consumers with less than $40,000 in HHI.

In terms of age, millennials on average hold $234 in unused funds per person, while Gen Z holds the least at $103 in funds per person. Boomers are in the middle of the pack with $151 in unused funds and Gen X at $128 per person.

The demand for gift cards amid the COVID-19 pandemic has continued to accelerate, particularly for open-loop gift cards. The average number of open loop gift cards purchased per quarter for the first half of 2020 was 7.1 cards, compared to 5.4 cards per quarter in 2019 and just 4.4 cards per quarter in 2018, according to data from an August 2020 InComm Consumer Pulse Gift Card Study.

InComm defines open-loop gift cards as ones that carry a major card network logo such as Visa and Mastercard and can be used at any merchant. They are intended for a single use, with their value determined at time of purchase. In contrast, reloadable cards that can be reused after the initial funds are depleted are deemed to be prepaid cards, a different card category.

“The reported increase in cards purchased at the end of Q1 2020 was surprising,” said InComm's Parlotto. “It could be that open-loop cards became more attractive to consumers at the onset of COVID-19 because of their convenient availability and the ease and flexibility with which they can be used. It’s possible that open loop was more attractive than paying interest on credit in a time of economic uncertainty, or perceived as less of a security risk when shopping online given the tremendous amount of e-commerce conducted during the pandemic as consumers began to practice social distancing.”

Even though open-loop cards showed strong growth in the first half of 2020 with the pandemic, consumers still flocked to closed-loop cards, which can be spent only at the merchant displayed on the card. An average of 4.7 closed-loop cards per quarter were purchased in the first six months of 2020, up by 20%, compared to the 3.9 cards purchased per quarter in 2019, according to InComm.

The year-over-year growth in demand for self-use gift cards has received a boost from COVID-19, according to data from an August 2020 InComm Consumer Pulse Gift Card Study. Demand is up in the first half of 2020, over the same time period in 2019 by 49%. The full-year growth in 2019 for self-use gift cards was up by 31%, compared to demand for 2018, indicating a long-term trend.

The COVID-19 pandemic has largely left dollar load amounts unchanged, with one key exception.

“The only notable change in [load] denominations is in 2020 Open Loop, with higher denomination cards ($200) nearly doubling, from 6% to 11%,” said Parlotto. “It’s possible this coincides with the reasons for the spike in open loop cards in Q1 2020.”

Gift cards for self-use, similar to prepaid cards, can be used as budgeting tools by allowing consumers to limit their spending in a certain category (such as restaurants) to the amount loaded to the card each month.

When it comes to consumer wish lists for this year’s holiday season, gift cards are at the top. Even so, demand has dipped slightly — 54% of consumers want a gift card for this holiday season, down from 59% in 2019, according to data from the National Retail Federation (NRF) 2020 Holiday Consumer Survey.

Most wish list categories fell in demand, which is in line with the overall decline in spending this year. The total amount spent in the 2020 holiday season is expected to fall $998, down from $1,048 in 2019. This is still below 2018’s level of $1,008. Gifts, food and decorations are not expected to decline in spending;only the area of non-holiday gift spend for oneself or family is expected to see a dramatic drop.

The NRF’s survey found that 60% of consumers expect to shop online for their gifts, a key target segment for gift card spend. Additionally, the NRF found that 96% of merchants surveyed expected their online holiday sales to increase.