’Tis the Season

By Mark Putman

Perhaps no time of year epitomizes the evolving trend of the integrated consumer buying experience more than the holiday season. Buyers are quickly realizing that rather than spending hundreds on gifts destined to be quietly returned come January 2013, the most efficient use of their money centers on gift cards and other prepaid methods that offer the recipients flexibility and choice.

According to First Data’s 2011 “U.S. Prepaid Consumer Insights Study,” the average amount spent per closed-loop card grew significantly in 2011, increasing by more than 23% compared with 2010. The average total amount consumers spent on closed loop gift cards increased to $211 from $161 last year. At a time when 71% of gift card recipients spend more than the amount on their card, the benefits are clear for merchants this holiday season.

Established merchants already know that the prepaid trend will continue to grow. The challenge for smart retailers is to find the best way to take advantage of gift cards and implement prepaid programs that cater to a higher rate of spending and store traffic during the holiday season. By answering this challenge, retailers may find the most direct route to the highest yield on their bottom line at the end of December.

The altered payments ecosystem clearly presents both challenges and opportunities for merchants — especially in the prepaid space. In addition to helping build a customer base during the crucial holiday stretch, gift cards create additional foot traffic (both by the purchaser and the receiver), generate brand awareness and increase same-store sales. When holiday stress gets to a breaking point, consumers are increasingly looking for a seamless online experience for customizing and purchasing prepaid cards that includes sending virtual gifts through social media, email, mobile vouchers, and reloading and managing their cards using mobile and online applications.

While gift cards continue to grow in popularity, it is vital for merchants to take the time to stay on top of industry trends. There are a few rules for the holiday season that every forward-looking merchant should keep in mind:

1 Reloading closed loop gift cards is still a niche application. Retailers must incentivize reloads. Adding “bonus bucks” to a reload would encourage nearly two-thirds of consumers to consider reloading.

2 Gift cards are highly valued by receivers. For more than half of gift card recipients, a gift card valued at $25 is nearly equal in value to a gift valued at $50. Gift cards benefit the recipient by allowing them to select a gift of their own choosing, as well as treat themselves by purchasing an item they did not plan to purchase with their own money.

3 E-gift cards are not yet mainstream. Retailers would be wise to market e-gift cards to the subset of consumers who have an interest. Overall, more consumers (47%) are interested in receiving a gift card than in actually sending one (22%), indicating an opportunity to educate consumers on the convenience of e-gift cards.

While payment systems continue to evolve with new technology, so do gift card programs. As the mobile payments revolution continues to grow and take hold, demands for the inherent benefits will follow. The future lies in offering the technology to support both physical and virtual gift cards, while the on-demand convenience of virtual gift card products will sway purchasing behavior and new channel opportunities for businesses.

The ability to store gift card information on a mobile phone appeals to 43% of consumers, helping eliminate burdens such as always carrying the card, not knowing the remaining balance and worrying about losing the gift card. For those dedicating their entire days to shopping on Black Friday (or even Christmas Eve!), a store’s gift card strategy can be the difference between hundreds of dollars in purchases versus storming out in frustration.

Enhancements to prepaid programs won’t take years to develop; the market has already started to grow. For merchants who want to take full advantage of this channel opportunity, the time to get in the game is now.

Mark Putnam is senior VP and division manager, prepaid solutions, of First Data.