Retailers See Gift Cards Boom As They Stress Reloadability

Closed-loop prepaid cards are growing more slowly than their newer, open-loop cousins, but recent numbers from big payment card processor First Data Corp. show the closed-loop sector still has plenty of life. First Data’s monthly SpendTrend report for October shows reload dollar volumes on closed-loop cards increased 25.2% from October 2009 and also were up from September’s 20.7% year-over-year growth rate. October’s reload transactions increased 34.4% from a year earlier and were up from September’s 30.4% growth rate.

Atlanta-based First Data, which has been in the closed-loop prepaid processing business for 15 years, says some certain merchant sectors saw especially big growth, notably quick-service restaurants. Reload dollar volume on QSR cards grew 78% in October and reload transactions jumped 96.2%. Redemptions on QSR cards, or actual spending, grew 43.8% in dollar volume in October and 34.5% in transactions. Activations, the initial purchase and load on a prepaid card, grew 16.9% by dollar volume at QSRs and 17.8% by transactions. The company doesn’t release actual spending volume or transaction numbers.

Michael Hursta, vice president of First Data Prepaid Services, wouldn’t identify any clients, but says the “coffee sector” and hamburger chains were very active in marketing their gift cards in October. But they’re not the only ones. Prepaid card activity is growing at casual restaurants and specialty retailers too, though at lower rates than QSRs.

“I think there is more emphasis in the U.S. community on promoting the existence of their gift card program, and second, that these cards are reloadable,” Hursta tells Digital Transactions News.

Also, merchants are adding more options for reloading besides forcing the customer to come into the store. “Nowadays an increasing number of merchants, QSR and others, are putting this functionality on their Web sites,” Hursta says. He adds that many also are enabling reloads via telephone.

Overall redemption dollar volumes in First Data’s closed-loop prepaid portfolio grew 7.4% in October while redemption transactions grew 18.3%. Activations increased 2.7% by dollar volume and 11.7% by transactions in October.

By dollar volume, reloads at specialty retailers grew 26% in October though redemptions grew only 1.3% and activations 1.4%. At casual dining restaurants, redemptions increased 6.7% while reloads and activations declined by 13.2% and 3.1%, respectively.

With transaction growth generally outpacing dollar-volume growth, closed-loop average tickets are declining. First Data’s overall average activation ticket was $31.17 last month, down 8% from $34.96 in October 2009. The average activation ticket fell 4.4% to $28.83 at casual restaurants, 2.5% to $55.55 at specialty retailers and 0.8% to $13.12 at QSRs.

Hursta says the overall decline is a result of smaller-ticket merchants, including QSRs and convenience stores, entering the prepaid card market, and an increase in gift cards being sold as promotional items, which “tends to bring down average tickets,” he said. Also, merchants are selling more prepaid cards to resellers, whose average activation is smaller than those by consumers.