Gift Card Market Will Double by 2007, TowerGroup Says

Sales of prepaid gift cards soared 47% last year as the 8-year-old product picked up momentum that will lead to a doubling of usage by 2007, the research firm TowerGroup Inc. reports in research released today. The largest beneficiary of the trend will be banks, the firm says. While bank-issued cards accounted for just 7% of the $45 billion in prepaid card sales rung up in 2003, banks' share of this market will hit 35% of a total $89 billion in sales in three years, with retailers' proprietary cards accounting for the rest of the market, the research firm says. “Bank-issued gift cards…are poised to take off in 2004,” says the report. Separate research by ValueLink, a unit of First Data Corp., estimated that 97 million gift cards had been sold in the twelve months through August 2003, twice the number sold in the the year-ago period. Introduced by Blockbuster Inc. in 1996, the gift card was soon adopted by other chains as a way of replacing paper gift certificates. Banks began issuing them only in 2002, but with significant advantages that TowerGroup says will propel banks' share of market. Among these advantages are universal acceptance and the rights associated with bank-issued credit cards, including chargeback rights and zero liability in case the card is lost or stolen. Also, though bank gift cards expire, the accounts behind them don't, and any value in those accounts remains the property the account holders. When retailers' gift cards expire, the report says, the remaining value may be claimed by the merchant. Unused funds on retail gift cards totaled $4 billion in 2003, TowerGroup says. For this reason, the report argues, bank-issued gift cards should be distinguished from those issued by retailers. MasterCard International announced in February it was buying Needham, Mass.-based TowerGroup from Reuters PLC for an undisclosed price.