Gift cards are thriving, but they are just one aspect of the booming prepaid industry. For example, many consumers may not realize that when they are reloading their account at Starbucks, Target, or Dunkin Donuts that they are essentially purchasing a digital gift card for self-use.
As Jordan Hirschfield, Director of Prepaid Payments at Javelin Strategy & Research, found in the Javelin Prepaid Consumer Sentiment: 3-Year Trend Highlights report, this is just one of the many trends driving the prepaid industry forward.
The study spotlighted upward trends, downward trends, and stable areas. All provide valuable data points for organizations deciding how they should invest in this segment and how they can better reach their customers.
Digital and Physical Equilibrium
Since the consumer sentiment survey was revamped three years ago, Hirschfield has seen several patterns emerge. One of the most-watched trends in the prepaid industry has been the continued prominence of digital gift cards.
As with digital payments, some have assumed that digital gift cards would eventually dominate their physical counterparts. However, this pattern may not hold true with prepaid.
“What’s interesting with digital and physical is it’s never going to be a flip to digital—it’s going to be an equilibrium,” Hirschfield said. “I think the data over three years is showing that there’s been a lot of stability in terms of the number of physical cards and digital cards in volume.”
Retail gift cards are still skewing toward physical cards. There are roughly 3 to 3.5 physical cards sold per person per year compared with approximately 1.5 digital gift cards.
Although these numbers have been steady, signs point to an upward trajectory for digital gift cards. Notably, there has been a substantial increase in load volume on digital gift cards.
Second, it is likely that the number of digital gift card purchases has been skewed. For example, the Starbucks or Target cards that consumers reload often aren’t reported as prepaid purchases because many individuals don’t consider them to be a gift card, per se.
As these statistics become clearer and funds continue to flow into digital gift cards, there is an increasing likelihood of an even digital-physical split.
“That’s how you’re getting to that equilibrium perspective, and that’s where I’m advising people I speak with—it is not an either-or scenario, it is a combined effort, and you need to be focused on it,” Hirschfield said. “Also, not only how does your physical support itself and your digital support itself, but it’s also how do they support each other? You have to be thinking of physical and digital, and the way it’s trending out over three years is as a 50-50 proposition.”
Self-Use vs. Gift Use
Outside of the digital and physical divide, there is also a growing split between those who buy prepaid products as a gift and those who buy them for self-use.
Some of the most popular segments where consumers buy gift cards for others have not seen substantial growth over the past few years. This includes food service companies, mass merchandisers, and apparel shops.
These industries have been relatively neutral, but that isn’t a negative. All of these segments are already in a strong position, so rapid growth isn’t to be expected.
However, several industries are experiencing growth in the gifting segment.
“Where we saw a lot of growth is in travel and entertainment: so hotels, casinos, resorts, theme parks, and airlines,” Hirschfield said. “That—to me—says, ‘That’s a great gift to give where there is no physical gift alternative.’ You can’t really give someone a hotel room, but you can give them the ability to get a hotel room. You can buy someone an airline ticket, but you don’t know their schedule.”
When it comes to consumers who buy prepaid products for themselves, substantial growth has been seen in the fast-food or quick-service restaurant (QSR) category. Interestingly, there has not been as much growth in the coffee segment, likely because many of the larger chains have already leveraged their prepaid programs.
There has also been growth in purchasing prepaid products for self-use from self-care providers, drugstores, and sporting-goods stores. Another segment that has emerged in the past few years is the online gaming and gambling sector.
“Online gaming, such as your Xbox, that is definitely growing, and that is definitely a self-use category,” Hirschfield said. “People who are gamers, that is part of their identity. But people who aren’t gamers just probably aren’t going to give it as a gift as much and aren’t really interested in it. So, it’s thinking about how do I get my user as a gamer to buy more of my prepaid products. That’s a big thing.”
Buying vs. Receiving
Hirschfield also examined the differences between what consumers want to receive as gifts and what they want to give as gifts—and found very different perspectives on either side of the equation.
“What people want are cash and cash alternatives, leading with gift cards,” Hirschfield said. “The No. 1 thing they want is a general-purpose gift card—your Visa, Mastercard, American Express, or Discover—because it’s accessible anywhere. The No. 2 thing they want—year after year—is cash, because cash is usable pretty much everywhere.”
After general-purpose gift cards and cash, recipients want retailer gift cards. This means that gift cards are the most popular choice for recipients by far. Roughly half of consumers would choose some form of gift card if they had only one choice.
However, there is a significant shift from the gift giver’s perspective. Even though cash is desired by recipients, most givers don’t want to give cash as a gift. Gift buyers also have a stronger preference for retailer-specific cards as opposed to general-purpose gift cards.
“The giver prefers a retailer gift card because they want it to seem a little more personal,” Hirschfield said. “But then the other thing, they still prefer to give actual gifts. They want someone to open something and have that experience. Cash doesn’t give you a gift experience. It’s a case of, ‘Hey, you may just go and buy something that’s a need, not a want.’”
A Positive Secondary Gift Carding Experience
However, this preference for giving physical gifts is opening up a new paradigm in prepaid.
“That physical gift is an interesting area for the prepaid industry, because many times that turns into a return, and a return turns into a store credit potentially—especially when it’s been a gift and it can’t go back to the original point of purchase,” Hirschfield said. “That store credit then becomes—in essence—another gift card.”
This trend has been increasing as more stores have loosened their return policies. This means there will continue to be opportunities for merchants to leverage this process because there is a pronounced desire among givers to give a physical gift, whereas recipients still want a gift card.
“How you handle a return is important, and not just by giving them a store credit, but maybe it’s a store credit with a bonus promotion and incentive,” Hirschfield said. “The behaviors are all still there—people who utilize gift cards buy more expensive items and spend more than the value of the card. That’s an interesting thing if you are a retailer or a program manager for gift cards.
“Especially in retail gift cards, it’s having that opportunity to say, ‘How do we make this physical item a positive secondary gift carding experience?”
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