Looming Holiday Season Promises Hefty Lift in Closed-Loop Prepaid Loads, Report Says

Closed-loop gift cards can expect to see an increase of more than 5% in holiday load volume over 2011’s loads, according to a new forecast from Mercator Advisory Group Inc., which researches the prepaid card industry.

Mercator predicts loads on closed-loop gift cards will hit $43.2 billion from Nov. 1 through Dec. 31, up 5.4% from estimated loads of $41 billion in the same 2011 period. Maynard, Mass.-based Mercator also forecasts that 1 billion closed-loop cards will be sold this holiday season, an estimate that includes virtual gift cards.

Mercator senior analyst Ben Jackson made the predictions based on historical trends and data from Mercator’s annual prepaid card industry surveys. He also notes the now-entrenched popularity of gift cards with both consumers and merchants. A recent consumer survey by the National Retail Federation found that 59.8% of respondents said they wanted to receive gift cards as presents this year, up from 57.7% of respondents who said they wanted gift cards in the NRF’s 2011 holiday survey.

Mercator predicts that $7.5 billion, or 17%, of the closed-loop loads will occur at the so-called gift card malls now ubiquitous in grocery and drug stores. The firm also estimates that loads on virtual gift cards will total $330 million. Retailers, payment processors, and tech start-ups offer digital gift cards.

Discount stores and department-store chains as well as specialty retailers tend to get big lifts in prepaid card sales during the fourth quarter, while restaurant chains with big prepaid card programs such as Starbucks Corp. and Dunkin’ Brands tend to see smaller increases. But innovations hold the promise of boosting prepaid card sales substantially for individual sellers. Target Corp., for example, early this month unveiled in-store gift card displays with QR codes that, when scanned by a customer’s smart-phone camera, enables the customer to send a virtual gift card to a designated recipient.

“This is one of those developments that may really change the position of virtual cards in the market,” says Jackson.

In a related development, Apple Insider, an online newsletter that covers news about Apple Inc., on Sunday reported that the computer and online music and software giant added a feature to its Apple Store app that enables consumers to buy and send digital gift cards by e-mail to recipients that are redeemable at brick-and-mortar Apple Store locations. The system generates a QR code that the recipient can print out for in-store use. Alternatively, the recipient can spend the virtual card online on Apple’s site or store it in Passbook, a new wallet service on Apple’s updated iOS mobile operating system that holds loyalty cards and passes.

Jackson says that closed-loop virtual cards have grown relatively slowly so far in their short life. They are, however, proving to be popular with procrastinators because of their ability to be bought and delivered anywhere at the last minute. Citing research from virtual card provider Giftango Inc., Mercator says 27% of digital gift card sales in December happen between Dec. 21 and 24, while only 14% of all December gift card sales occur between those two dates.

Payment processor First Data Corp. reported Friday that dollar volume on closed-loop prepaid cards processed on its system grew 2.7% in October over October 2011’s levels. First Data’s SpendTrend report said closed-loop charge volume grew 6.4% in September over year-earlier levels, a turnaround from a 4.2% year-over-year decline in August.