Part 1- Gift/prepaid Cards

Gift/prepaid cards have evolved from the humble gas card introduced by Mobil Oil Company in 1995 to the first major retail gift card offered by JC Penney in 1996 to Target in 1999 to the vast market of today. The total sale of gift cards in 1999 was $19 billion which jumped to $37 billion in 2002 to the 2009 total gift/prepaid market of $116 billion. They have gone from a passive role within the plastic payment option companies to a much larger core business product generating huge sums of money for retailers and banks alike. Gift cards have also evolved from a “once in a while” gift into the most requested gift due in large part to their convenience of gift choices for the recipient. But as with many “good” things, gift cards have a dark side as well. Until recent scrutiny of gift cards, the public has not been privy to nor very interested in the alternate revenue stream for retailers and banks created by gift cards. This alternate revenue stream which is created by funds being left on the cards once they expire has been termed “breakage” or “spillage”. This breakage is producing profits for the banks and retailers to the tune of $8 billion or averaging 10% of the total loaded value of these cards (discussed further in parts 2, 3, and 4).

As the popularity of gift and prepaid cards have flourished and expanded so have their critics and the many reasons for not wanting nor giving the cards (although still a vast minority). Even against major criticism from the press and government the gift and prepaid card arena has exploded wildly with cards available for purchase for any imaginable occasion, in every type of media, from physical to virtual via email or SMS.
History has shown us the gift and prepaid card market has done nothing except grow, with continued growth estimates of 28% compounded growth annually until at least 2014.

So why do we give gift cards? That question has many answers and I will discuss a few of them here. One major reason for giving a gift card is convenience, it allows the recipient to purchase a gift which they will get use from rather than giving a gift that will end up being re-gifted or put on a shelf never to be seen again. Another reason is that gift/prepaid cards are more convenient than cash and if lost or stolen can usually be reclaimed from the issuing company as opposed to cash, unless like Woody on “Cheers” and you actually remember the individual bills’ serial numbers! The last of the “big” reasons for giving gift/prepaid cards is to teach children how to budget, these are usually prepaid cards loaded with small amounts of money and given to teens and college students in lieu of cash.

And now for the opposition! Above all is the idea that gift/prepaid cards are too impersonal. This does have some merit especially if one randomly grabs a gift card off a rack at the last minute but then again, who’s fault is it for last minute shopping anyway? (A solution to this problem as well as all the others following this will be discussed in Part 5, it’s a real wing-dinger!) The next big complaint from consumers is closed-loop or store branded gift cards lock the recipient into shopping at one particular store or chain. Finally, after many articles and much press coverage, people are concerned that the recipient won’t use all of the funds or will forget they have the card and let it expire unused.

Gift/prepaid cards offer both pros and cons but in the end they still remain and will continue to remain the #1 asked for gift from consumers so the least we can do is give you a card which will benefit you, your recipient, and many others.

Darren Cannao
President, Matter Of Change
Darren@MatterOfChange.com