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Only 1% of consumers buy Visa- or MasterCard-branded prepaid gift cards from financial institutions, which may cause some financial institutions to stop selling the open-loop cards and focus their attention on other card products, says Tony Hayes, director at Oliver Wyman Group, a New York-based management-consulting firm. Hayes also wrote the Pulse 2008 Debit Issuer Study released last week (CardLine, 8/18). Sixty-two financial institutions participated in the study, including large banks, community banks and credit unions that collectively issue more than 74 million debit cards. Of the survey respondents, 61% offer open-loop prepaid gift cards, and an additional 16% plan to enter the market, the study found. "While many institutions sell gift cards, only 1% of consumers purchase prepaid gift cards from financial institutions from financial institutions," according to Pulse. "Banks are not the best retailers," Hayes cites as one reason branch gift card sales are so low. "Consumers see giving gift cards as giving cash, and they don't want to give cash. If someone wants to give you a book, they will give you a Barnes&Noble gift card." The Montvale, N.J.-based Network Branded Prepaid Card Association agrees financial institutions' branches are not popular sites for open-loop, prepaid gift card sales. "Places like supermarkets, convenience stores, malls and other heavy-traffic locations can better be suited as distribution channels," Paul Tomaskofsky, the association's acting executive vice president and chief operating officer, wrote in an e-mail message to ATM&Debit News, a CardLine sister publication. To improve sales, financial institutions should promote gift cards during peak gift-giving holidays, such a Father's Day and Mother's Day, Tomaskofsky writes. Last year, prepaid gift cardholder loaded $5.03 billion on their cards compared with $2.96 billion in 2006 and $1.34 billion in 2005, says Brent Watters, senior analyst for Mercator Advisory Group in Maynard, Mass. "The growth is good, but it is slowing," Watters says. On the other hand, payroll, flexible spending account and health savings account cards have begun to succeed for large banks, which offer them to corporate customers, Hayes says. Payroll card are a much easier sell for banks to their corporate customers, Watters says.
