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With a little more marketing oomph behind it, the gift card market rebounded in 2014 after a down year in 2013, according to a report released Wednesday by Mercator Advisory Group. Virtual gift cards, a small but key segment of the market, held their own and may soon benefit from the emergence of more digital wallets, a Mercator analyst says.
Overall, gift card load volume grew 9% last year despite what retailers reported as a slower holiday season. “The big thing was the growth vs. 2013,” Ben Jackson, director of the prepaid advisory service at Maynard, Mass.-based Mercator, tells Digital Transactions News. “There was almost double-digit growth. Issuers were able to turn things around.”
Driving that growth was stronger marketing, including efforts to promote gift cards in connection with more holidays and special occasions, Jackson says. While birthdays and Christmas have always been obvious occasions for the cards, now merchants are pushing them for graduations, Mothers’ and Fathers’ days, and other lesser holidays throughout the year.
“There was more of a marketing effort, more of a push to say gift cards are worthwhile around more holidays,” Jackson says.
Another key driver last year was the market for so-called consumer-incentive cards. These are prepaid cards handed out to consumers as a reward for some desired behavior in a store or online, such as trying out a product. “There was some good growth in consumer incentives that helped the overall market,” Jackson notes.
Perhaps the most interesting segment of the market is that for so-called virtual cards, or cards that exist digitally on a mobile device rather than as plastic. Issuers like Starbucks Corp. and Dunkin Donuts have been especially successful with such cards in recent years.
Jackson estimates virtual cards accounted for 3% to 4% of all gift card loads last year. That’s a small chunk of the market but one that could grow dramatically in coming years with the advent of mobile wallets, Jackson says. “We’re still not seeing digital take over the market, but it’s very valuable for some retailers and popular with digital natives,” he says.
Wallets like Apple Pay and Android Pay have already launched or are expected to soon, and they are expected to be followed this summer or fall by products from Samsung and MCX, a consortium of major retailers. If some or all of these products integrate virtual gift cards, that could boost the market by providing a ready-made platform for more retailers, Jackson says.
Indeed, the wallets could prove to be the best of all worlds for virtual-card issuers, Jackson says. That’s because they are usable across multiple merchants but any single gift card loaded in them can only be used at the issuer’s stores, eliminating the possibility of so-called customer leakage.
On top of that, the platform comes built and tested, which means merchants don’t have to assume the development costs of building their own. “Now I’ve got MCX to do it for me,” says Jackson.
