Data: Reinventing the gift card

October 30, 2018 11:01 AM

As the gift card market grows and becomes increasingly digital, so has the product's utility. Thus, many consumers are shifting their habits and buying gift cards for themselves either due to an incentive program or to help with budgeting.

While the trend itself may not be surprising, the extent to which consumers are buying "gift" cards for self-use is shocking.

Consumers today are more likely to own a prepaid card than conduct online bank bill payments, according to the Federal Reserve Bank of Boston. However, the prepaid ownership trend is negative while the rate of online bill payment is relatively flat. Similarly, ownership levels of credit cards and debit cards have also remained flat over the last three years of the Fed’s consumer survey. The 2017 survey was conducted among 3,099 adults over the age of 18 years of which 895 consumers also participated in the 2015 and 2016 surveys.

A common use of prepaid cards is to help a person with managing money, unlike credit cards which allow a person to revolve a balance. However, in the Fed’s research it noted that credit card owners have become more debt conscious recently, as 45 percent of credit card users paid their balance in full in 2017 versus only 41 percent in 2015.

The popularity of digital prepaid gift cards has recently received a major boost among consumers, according to First Data’s Prepaid Consumer Insights Study. The research, which is based on a survey of 2,000 consumers, also found that the per capita purchases of gift cards, both digital and physical, has also grown in the last year. While physical prepaid gift cards have continued a multi-year growth trend, until recently, the purchase of digital ones had been stuck at a rate of four per person annually.

One potential contributing factor behind the growth in digital gift cards is that major physical card competitors have recently been very aggressive in the digital world.

Last year, Blackhawk Network acquired digital prepaid card player CashStar Inc. for $175 million to boost its digital gifting business. Also last year, First Data and Fleetcor attempted a joint venture to drive digital gift card growth, but terminated the arrangement, citing regulatory concerns. This follows First Data's 2014 acquisition of Gyft, a digital gift card provider.

When it comes to buying prepaid gift cards, over nine in ten consumers reported that they had made a purchase, according to a Blackhawk Network study conducted in March 2018 among 3,030 adults. While purchases of gift cards for someone else was very high, as could be expected, the amount of consumers stating that they had purchased one or more for themselves was an impressive 69 percent.

The survey also found that while 74 percent of gift card buyers have made a purchase from a third party such as a grocery store or gift card mall, almost half (49 percent) prefer to buy the gift card directly from the retailer or brand where the card can be used.

Chart: Discounting can drive prepaid cards

There are many reasons consumers buy prepaid gift cards for themselves, however no single answer is dominant in driving this activity, according to the First Data 2017 Prepaid Consumer Insight Study. The research surveyed 2,318 adults over the age of 18 in August 2017.

The top reason for buying a prepaid gift card was to receive a discount from the retailer or brand with 37 percent of consumers stating this as their reason. Providing discounts on prepaid cards is common for high-value single load cards and for encouraging active use on reloadable prepaid cards. When Lowe’s launched its prepaid card called PreLoad earlier this year, it extended a 5 percent discount for all purchases made using the card, available as a monthly statement credit.

Other reasons for buying prepaid cards for self-use included a rewards or loyalty program, which was the motivating factor for 35 percent of consumers. As points in a loyalty program can often be translated into a cash value, it’s not surprising that this follows discounting as the second most popular reason. The third most common reason was to enable online shopping, picked by 27 percent of consumers.

There is a common belief that gift cards are often purchased as a last-minute shopping item. Retailers placing gift cards at the checkout aisle next to the candy and magazines can act to further this misconception. Based on data from InComm’s 2018 Open-Loop Gift Card Study, almost three-quarters (73 percent) of open-loop gift card purchasers reported that they had planned to buy the card in advance. Only 16 percent stated that the purchase was spontaneous while 11 percent said it was a last minute purchase.

When buying open-loop gift cards in-store, 62 percent of consumers said they found the open-loop gift card they purchased from the main gift card display while 29 percent reported that they found them in the checkout lane.

For the upcoming holiday season, gift cards can be expected to be very popular for both givers and receivers. In the NRF 2018 Holiday Spending Survey, conducted in October 2018 among 7,313 adult consumers, gift cards and certificates were the most requested item among those surveyed. Sixty percent of consumers stated that they would like to receive gift cards and certificates this winter holiday.

Rounding out the top three requested items were 53 percent who said clothes as the second choice and then 37 percent who said books and other media in third place. Breaking the results down by gender revealed that 66 percent of women desire a gift card while 32 percent would like to receive jewelry.

On a positive note, the NRF study said that consumers plan to spend an average of $1007.24 this holiday season. That’s up 4.1 percent from last year’s holiday spend of $967.13. Consumers stated that $637.67 of the total amount would be spent on gifts while $215.04 would be spent on non-gift holiday items such as food, decorations, flowers and greeting cards. Since this is also the time of the year that many retailers run sales, consumers noted they would spend $154.53 on other non-gift purchases to take advantage of retailers’ promotions and discounts.