Gift Card Boom Fires Up New Exchange
One indication of how deeply plastic payments have influenced the U.S. retail market has been the explosive growth in gift cards at the expense of cash, checks and other forms of plastic. Not only has the National Retail Federation reported that gift cards have effectively extended the holiday shopping season well into January when it used to end with the New Year, there are other signs as well that retailer issued gift cards have become their own commodity.
According to one CardHub.com, a website that tracks card news and helps consumers find less expensive credit cards, consumers purchased almost $28 million in gift cards over the 2011 holiday season and the site estimated that $41 billion in gift card balances have gone unredeemed since 2005.
Sensing an opportunity, CardHub has launched an exchange that it claims makes the only secondary market for gift cards among consumers who want to buy and sell them, allowing consumers to sell or swap any gift card regardless of brand or store affiliation.
CardHub CEO Odysseas Papadimitriou explained that the site saw an opportunity among the millions of consumers who have gift cards or parts of gift card balances from retailers that might not be the largest or most sought after.
While many people simply don’t know that unwanted gift cards can be sold online for cash, others are discouraged from doing because the card is not affiliated with a major national retailer and therefore will not be accepted by an online gift card exchange, he noted.
Or some consumers find they used some of the card’s funds and an unusual denomination remains. Or they have store credit instead of an actual gift card or they don’t want to give up any value to middle men, he explained.
Papadimitriou said people might also want to re-gift a card, swap it, sell it to pay down debt or donate it to charity.
“According to CardHub’s latest study, U.S. consumers were projected to end 2011 with roughly $64 billion more credit card debt than when they began it. Every little bit counts when it comes to paying down what we owe, which means that the $41 billion that U.S. households have in unused gift cards would sure come in handy,” Papadimitriou added.
Meanwhile, a CUSO that offers credit unions gift cards with major brand names reported having a very strong holiday season and said it is not worried about the competition from retailer issued cards.
The Members Group, a payments CUSO affiliated with the Iowa Credit Union League, reported that the ATIRAgift card, a prepaid, open-loop gift card, had a very good holiday season.
Open-loop cards are those that carry a major card brand and may be used wherever that card brand is accepted. Closed-loop cards are really more akin to traditional gift certificates and can only be used at sites designated by the issuer, usually a retailer.
TMG reported that it sold 25% more gift cards in 2011 than it did in 2010, both because an additional 29 credit unions around the country now offer its Visa-branded gift card and because consumers acceptance of the cards has continued to grow.
“Over time, consumers have come to recognize the open-loop gift card as not only an option, but the better option, when compared to closed-loop cards,” said Konrad Christensen, TMG’s retail payments product manager. “Many of TMG’s clients have put forth high-quality, targeted marketing campaigns to successfully reach the likely gift card buyers in their individual markets.”
The average dollar amount loaded to ATIRAgift cards remained unchanged at roughly $82.50 during both the 2010 and 2011 holiday seasons, the CUSO reported.