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Gift cards issued by retailers are heating up, according to the latest research from Mercator Advisory Group. Total loads grew 6% in 2016 to reach $133.9 billion, according to Mercator’s Ben Jackson. That performance follows a decline in loads the year before.
The research, which covers closed-loop gift cards as well as prepaid account access devices issued by merchants, indicates several reasons for the renewed growth, says Jackson, who is director of Maynard, Mass.-based Mercator’s prepaid advisory service.
A primary driver is the increasing use of these cards as consumer rewards, he says. Indeed, separate research by the McLean, Va.-based Incentive Research Foundation indicates that, by the end of 2015, gift cards trailed only award points among companies offering customer rewards, with 51% of firms offering the cards compared to 55% offering points.
Another factor is the steady rise of e-commerce, which in turn has sent consumers in search of secure alternatives to credit cards. “I believe that more people are using gift cards as a digital currency,” says Jackson, in an email message. “Youth who don’t have credit or debit cards can use gift cards for online shopping, and the same goes for people who are unbanked. Also, some people may be using gift cards to protect their credentials because then they do not need to enter credit or debit cards for online and mobile shopping.”
Yet another reason for the rise is the continuing growth in a phenomenon known as self-use. While gift cards, as the name implies, are intended to be given away, more people are buying them for themselves. “Self-use of retailer-issued cards has continued to grow as gift cards are linked to rewards programs, mobile apps, and the like,” notes Jackson. “People are loading up cards to budget and earn rewards points for places like Starbucks, Dunkin’ [Donuts], and other chains.”
Other findings include the increasing significance of reloads as a percentage of overall closed-loop gift card volume. Also, while the overall market recovered momentum, the employee and partner incentives sector proved to be a laggard as a result of a drop in spending in particular programs, Mercator says.
The firm is optimistic that gift card growth can maintain that momentum. “The closed-loop gift card market has opportunities to continue to grow as retailers learn new ways to make use of their branded currencies in omnichannel commerce,” says Jackson in a statement.
Mercator’s latest gift card research is included in a report issued last month, entitled “Retail Gift Card Trends in the United States: 2016 in Review.”
