November 10, 2015
LTP has come up with another crisp three-page sector snapshot on the US prepaid and gift card market in 2015 which analyzes the prepaid and gift card market and the major players dominating it.
Prepaid card growth has been fueled by multiple factors like providing electronic payments to those outside the banking system, serving as a cost-effective alternative to cash and checks for both businesses and governments. Prepaid cards are payment cards with a stored value on the card itself unlike debit cards, where an external account is maintained by a financial institution, or credit cards, which are subject to the credit limits set by the issuer. Another benefit prepaid cards provide is the segmentation of spending by consumers for areas such as travel, online shopping, m-commerce, etc.
Gift cards are also prepaid cards but are differentiated in its purchase and usage. They are purchased for occasions like birthdays and holidays. They are also used in corporate incentive and loyalty programs.
The gift market is expected to experience double the growth throughout the 2000s. However, it will grow in single digits until 2020. It is expected that as the mobile market continues to accelerate, major retail, technology and entertainment companies will aggressively test e-gifting strategies.
Prepaid cards also play a big and growing role in mainstream retail operations. In 2014, purchases made via prepaid cards were more than $200 billion, or 5% of the total retail spending in the entire US.
Certain factors are contributing to the growth of business through prepaid cards:
- Prepaid cards help protect funds. If a card is lost, it can be canceled and replaced and funds can be restored.
- Prepaid cards work well for employers who have to pay people who do not have dedicated bank accounts. This has led to a growth in payroll deposited on prepaid cards.
- Prepaid cards are being distributed through card malls. A card mall is a centralized location containing prepaid cards from various retailers—basically a card rack. Card malls can be found in a variety of retail spaces, such as convenience stores, grocery stores and drugstores. The cards can be in the form of distributor-sold gift cards or branded gift cards.
A good prepaid and gift card management solution should enable shoppers to turn the unused ones into cash. There are companies like Coinstar which take your unused gift cards for cash. Coinstar Exchange kiosks accepts gift cards from nearly 150 retailers including Lowe’s, Best Buy, Target, Macy’s, Starbucks, etc. A customer can scan his or her unused gift cards with at least a $20 balance on them and can get 60%-85% of the balance as cash in exchange. Coinstar verifies the identity of the customer through his/her driver’s license and credit cards. Plastic Jungle (acquired by CardCash) and Cardpool also do the same but with certain limitations. For example, Plastic Jungle pays only in exchange for Amazon gift cards and via PayPal.
In this three-page sector snapshot by LTP, we have reviewed and categorized 11 market players into four categories, mainly:
- Prepaid - Consumer: Within this category, companies or banks offer prepaid cards to consumers to manage finances (ex: loading money) like a traditional bank account.
- Prepaid - Business: Players offer small businesses options to manage employee expenses, including controlling where purchases can be made and assisting in managing cash flow by allowing preset spending limits on operating expenses.
- Gift: Includes market players offering gift cards to consumers, merchants or both.
- Platform: Players offer businesses and consumers comprehensive solutions.
Table of Contents:
1. Market Size of Prepaid and Gift Cards
2. Market Players: Prepaid and Gift Cards
3. Technology Trends in the Prepaid and Gift Card Market
4. Consumer Trends in the Prepaid and Gift Card Market
5. Market Trends in the Prepaid and Gift Card Market
6. Regulations in the Prepaid and Gift Card Market