It took about 15 years, but the U.S. prepaid gift card market this year will reach $100 billion in total account deposits for the first time, pushed over the milestone mark by the emergence of e-gift cards, a new TowerGroup report predicts.
In 2011, deposits into the virtual gift card accounts will reach $1 billion and will quadruple to $4 billion next year, rising to $8 billion in 2013 and to $11 billion in 2014, TowerGroup says. The segment includes transactions conducted through links to such social media sites as Twitter and Facebook and through merchants seeking to capture sales through mobile-phone applications or proprietary programs operated by such companies as Amazon Inc., eBay Inc. and Starbucks Corp.
“Just as point-of-sale card activation satisfied a consumer’s need for instant access to the product, integration with mobile channels will further empower transaction-hungry consumers with the ability to use their handsets for purchases,” the report notes.
Moreover, e-gift cards can help ensure consumers maintain access to their prepaid funds if something happens to their phone or some other account problem arises, Brian Riley, TowerGroup senior research director, retail banking and cards, tells PaymentsSource.
Unlike with traditional prepaid cards bought in stores where purchases are anonymous, consumers generally register to receive an e-gift card, thus enabling the issuer to link the account to a specific individual. “By electronifying them, you get an audit trail you can follow through the issuer, and you get a better chance of getting your money back” in case a problem arises, Riley says.
This year’s $100 billion total represents a 9.9% increase from $91 billion in 2010, according to TowerGroup, whose totals also include universally accepted open-loop, miscellaneous closed-loop, restaurant closed-loop and retail closed-loop cards. In 2012, the research company predicts, the gift card market will reach $109 billion and rise to $117 billion in 2013 and $126 billion in 2014.
Pretty hefty sums given that merchant and universally accepted prepaid cards generally didn’t launch until the late 1990s, and even then it took years for the market to make them widely available.
Factors helping now to drive the overall market increase include improved consumer convenience and relief that Title IV of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 brought by ending many of the industry issues surrounding lost value, card fees and expirations, TowerGroup says.
The Credit CARD Act eliminated expiration dates and junk fees for most gift cards, especially those not given as free offerings or as sales incentives. In 2008, expired cards represented 52% of the amount of funds left unused in card accounts (known as breakage), followed by fees associated with balance inquiries or service charges at 39% and physically lost cards at 9% of lost value, according to the report.
Because of the legislation, the amount of breakage has steadily dropped, to $2 billion this year, or 2% of deposits, from $8 billion, or 9.8% of deposits, in 2007. Between 2009 and 2010, the amount of breakage was cut in half, to $3 billion from $6 billion, and the effects of the Credit CARD Act will continue to drive down such associated costs, TowerGroup says.
