Gift Card Industry

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Gift Card Industry

Factors that impact the growth of the global gift card industry, including the rising demand for gift cards by different consumer segments by end-user/demographics and growth in e-commerce, have been presented below. Also provided are the factors affecting the growth in the digital gift card segment such as the adoption of digital cards by different consumer groups and the frustrations faced by users in the digital card-buying and redemption processes. Insights on the challenges faced by the gift card industry such as cybersecurity risks and the perception of gift cards as impersonal have also been provided.

Factors Affecting the Growth of the Global Gift Card Industry

Rise in Consumer Demand for Gift Cards

  • By generation, the demographic consumer segments of Millennials and Generation-Z consumers have seen an increase in purchasing power resulting in a rise in demand for gift cards for self-use and for gifting purposes.
    • For example, in the U.S., Millennials and Generation Z customers are adopting gift cards more frequently than Gen X and Baby Boomer consumers. About 51% of Gen Z and 47% of Millennial consumers are buying physical cards every three months.
    • In the U.K. "the youngest generation of consumers is driving the frequency of gift card purchasing, with 44% of Generation Z/Millennials buying a gift card at least once every two months, compared to 35% of Generation X and 16% of Baby Boomers."
  • By end-user, there is increased adoption of gift cards for the corporate customer.
    • Corporate gifting is applied for various reasons, including “to show appreciation to employees or vendors, drive loyalty, appease customers following a less-than-ideal experience or just show customer care and appreciation.”
    • Globally, about 25-35% of a merchant’s gift card revenue is driven by B2B sales of gift cards.
    • In Europe, "over 50% of companies are shifting their incentive spending on employees from pure sales incentive rewards programs to corporate gift cards."

Growth in E-commerce

  • The rise in adoption of e-commerce and the growth associated with the e-commerce industry, which grew by 8% between 2017 and 2018 to reach $25.6 trillion, propels the growth in the global gift cards market.
  • The consumer use of gift cards is highly driven by e-commerce websites such as Amazon, Alibaba, eBay, and Flipkart.
  • Also, the growing use of e-commerce systems such as "digital payments/wallets makes it convenient for consumers to track, manage, and redeem gift cards." With such empowerment, consumers are subsequently seeking for more ways to make use of gift cards.
  • From a broader perspective, the growing penetration of the internet and smartphones worldwide provides an opportunity for continued growth in e-commerce, and subsequently, the growth of gift cards.

Factors Affecting the Growth of the Global Digital Gift Card Industry

The value proposition of digital gift cards “is that they can digitize purchase, redemption, or both.” Some of the factors affecting this digitization in the gift card industry include:

Adoption of Digital Cards by Select Consumer Segments

  • As consumers from the younger consumer segments have seen an increase in purchasing power and the ability to buy gift cards for self-use and for gifting purposes, these demographic segments have also shown more affinity towards digital gift cards than physical gift cards. This is primarily due to "the growing smartphone penetration and ease of managing digital gift cards through digital wallets and mobile applications."
  • For example, in the U.S., 41% of Gen Z consumers and 39% of Millennials buy e-gift cards at least once every three months, compared to 26% of Gen X consumers and 14% of Baby Boomers. "Most Millennials (72%) say they used e-gift cards and have also tried other payment methods such as mobile apps (60%), gift cards in mobile wallets (44%), and mobile wallets (42%)."
  • The global e-gifting segment makes up 11% of the global gift card market. In some countries, the digital card segment accounts for as high as 30%, as is the case in the U.K. A growing proportion of shoppers from the country have cited online as their preferred purchasing channel, with 58.6% of consumers reporting that redeeming online is an influential factor in their gift card purchase.
  • Other consumer groups that are driving the growth of the digital gift card industry include self-use customers, accounting for 69% of consumers, who primarily buy digital cards so that they can shop online.

Unsatisfactory Digital User Experiences

  • Digital gift cards offer more convenience for consumers, as compared to physical cards.
  • However, inferior or mediocre experiences in purchasing or redeeming digital cards dilute the customer’s experience and consequently inhibit the growth of the digital card market.
  • These experiences may include such problems as broken links, inability to buy gift cards, missing information, landing pages that are not optimized for mobile devices, and sites that are not friendly to people living with disabilities.
  • Consumers also expect digital purchases, gift card processing to be instant, which is not always the case. For example, on Amazon, the delivery of digital card products may be delayed up to four hours, such as when a new payment method is used or when an order is placed with a large quantity or dollar amount."
Other factors that are positively impacting the growth of digital gift cards are the innate benefits derived from using digital gift cards including traceability, low cost when compared to plastic gift cards, and ease in reloading.

Challenges Facing the Global Gift Card Industry

Cybersecurity Risks and Associated Challenges

  • Gift cards, especially digital cards, are a target for scammers looking to steal the funds in the cards or thieves who steal a consumer’s identity.
  • Hackers are able to steal money from gift cards by stealing the funds remaining in the cards; and using stolen credit cards to buy gift cards that are later sold online to gift card resale websites. Gift cards are also a popular way to launder money.
  • For merchants, online fraud can cost up to 5.4% of their annual revenue. Also, "fraud rates for gift card e-commerce purchases are higher than other types of card-not-present (CNP) fraud."
  • In order to deal with these cybersecurity risks, merchants are developing in-house security measures as well as working with third-party providers to apply enterprise-class tools that ensure the security of their sites.
  • However, in some cases, retailers apply systems and procedures that give false positives on fraud screening in their efforts to prevent instances of fraud.
  • False declines, where legitimate orders are rejected, "account for more than half of the cost of fraud, representing 2.9% of revenue."
  • False declines can result in missed revenue from what should be an approved transaction for the retailer, and equally importantly, they also harm the customer lifetime value for legitimate potential customers.

Perception of Gift Cards as Being Impersonal

  • Although statistics show that gift cards have become a preferred gift for many consumers, in some quarters, they are still perceived as impersonal.
  • Gift cards are viewed as impersonal as they do not “provide the personal or emotional experience that is core to most exchanges of gifts.” Some consider them as “a fallback option, a last-minute gifting, or something to choose when the giver does not know enough about the recipient's likes and dislikes to confidently pick a thoughtful gift.”
  • In the U.S. and Canada, 18% of gift card buyers, "primarily married women in their late 30s and early 40s with slightly lower income," view gift cards as an impersonal gift, and thus only give them to people they do not know well.
  • The large amounts of money lost due to low redemption rates in gift cards may lend credence to this perception. About 2% to 4% of gift card money goes unused every year, which adds up to between $2 billion and $4 billion in the U.S. This amount is estimated at 6% in the U.K., amounting to over £360 million (about $470 million) a year.
  • Merchants are advised to consider the personalization of gift cards to deal with this perception. In a consumer survey in the U.S., 60% of participants felt that “a greeting card or a gift card personalized with their own message makes a gift feel more thoughtful.” Also, 30%-40% of the participants would be “encouraged to spend more on a gift for personalization options, regardless of whether the personalization is a message, gift wrap, video, or photo.”

Research Strategy

To provide details on the factors impacting the growth of the global gift card industry and the digital cards segment, as well as the challenges facing the industry, we searched through industry reports, survey reports, and articles. As some of the global and regional reports were behind paywalls, we used information from individual country details, (primarily the U.S., as it makes up about 27% of the global market) and regional details to ensure that we provided a global scope on the insights presented.