Prepaid gift cards are gaining favor with U.S. consumers, who seem to be growing accustomed to using these products now that major store chains promote them.
The credit card industry has been optimistic about prepaid cards and their prospects for taking market share away from cash and checks. The results of a recent poll seem to show that prepaid cards are making headway: 45% of the 1,000 people surveyed said they had purchased prepaid gift cards, versus 11% last year, said the surveys sponsor, Standard Register. Standard Register, of Dayton, Ohio, is a document and information management company that counts prepaid gift cards as one of its product lines. The telephone polling was conducted by Eric Mower and Associates, a marketing firm in Rochester, N.Y.
Robert Brolsma, manager of account implementation at Standard Register, call the surge in gift card purchases reflected in the survey results quite surprising. He said the jump is probably attributable to gift card programs started in the past year by such megaretailers as Wal-Mart Stores Inc., Kmart Corp., and Home Depot.
Moreover, companies are coming up with new ways to use prepaid cards. Some insurance firms have begun giving their customers the option of receiving their claims on stored value cards (see article starting on page 1).
Consumers have also been spending more on gift cards. The average gift card purchase among those who said they used them was $200, against $139 the year before, Mr. Brolsma said. The retailers are promoting them and also moving the threshold up, he said. What was once a $25 card might become a $50 card. Consumers who use them once get comfortable spending on them.
Cheryl Long, product marketing manager at TSYS Inc., a card processing company in Columbus, Ga., that counts many large retailers as its customers, said people are buying gift cards more often and buying them in higher denominations.
At first, prepaid cards were used strictly as gifts, she said. Now that more people are aware of them, theyre using them as spending cards, giving them to college students or to children at home.
According to the Standard Register survey, most of the top retailers now offer some kind of stored value card, whether a gift card, phone card, or loyalty card. Forty-four out of 50 top retailers polled said they offer at least one kind of prepaid card. About half of those surveyed who are enrolled in loyalty programs said they shop more frequently at those stores.
As consumers move toward using prepaid cards as purchasing cards for themselves rather than as gift cards for others, more retailers will want to offer them, she said.
Retailers that offer gift cards in their stores are now interested in selling them online as well, Ms. Long said. The plastic cards would be separate from electronic accounts the retailers may already offer for online purchasing.
In another new development, coalitions of merchants are offering a single card that can be redeemed at any of the stores involved. Its a twist on Visa and MasterCard, where the card can be accepted anywhere, Ms Long said.
She said she was curious to know how many retailers offer cash back for the unused portion of card. Keeping the money inside the store is one of the real incentives for merchants to offer gift cards, she noted.
Sixty-one percent of the survey participants who had received gift cards told Standard Register that they ended up spending $10 to $20 more than the cards actual value. And 55% said they made more than one trip to the store to redeem the cards value.