Transaction Trends

By Ryan Aumann, ISV Representative, Boarding and Maintenance, EVO Payments • Aimee DuCasse, Marketing Director, Factor4 & MAPP Advisors • Chris Ziegler, Chief Product Officer, Merchant’s PACT
Members of the ETA Industry Affairs Retail Technology Committee

Gift Cards are the most popular gifts for major holidays, special occasions, and for no reason at all. According to the National Retail Federation, gift cards have been the most desired gift for over a decade, with 59% of people asking for them. [1] The global gift card market was valued at $835.2 billion in 2022 and is projected to reach $4.2 trillion by 2032, growing at a CAGR of 17.7% from 2023 to 2032, based on information from Allied Market Research. This represents a huge opportunity for retailers.

A gift card is a stored value card loaded with a certain amount of money that can be used as a form of payment at retailers. Store gift cards are called closed-loop and can be used only for purchases at specific retailers. Open-loop gift cards use the Visa, Mastercard, or Amex networks and can be used at any retailer that accepts those cards. 

Gift cards generate significant revenue, increase brand loyalty, reduce attrition, and attract new customers. Research shows that people tend to spend more than the value of their gift cards. In fact, 65% of shoppers spend an average of 38% more than the card’s initial amount. [2] Gift cards attract new customers and are likely to bring them back. Surveys reveal that 4 out of 5 people return to use the remaining balance on their gift cards, even if it’s just a few cents. 

Retailer best practices for gift card programs include displaying them at point-of-sale, selling gift cards on their websites, promoting them on social media, and offering online and in-store gift card promotions. 54% of Americans surveyed said they have taken advantage of gift card promotions. Promotions such as “Buy a $50 gift card, get a $10 bonus gift card” are a great way to increase sales and drive return visits. Tom Niedbalski, vice president of gift card solutions at Fiserv, said, “Everyone should be running promotions. They pay for themselves. You get a lot of uplift on the bonus cards. Also, a lot of breakage.” When consumers redeem their gift cards, retailers should offer promotions such as 10% off reloads to entice them to reload the gift cards. 

COVID-19 closures brought a dynamic shift in how businesses operate, especially accelerating the shift towards digital solutions. The adoption of digital gift cards emerged as a trend that continues to gain momentum. Digital gift cards are essential for many small businesses, surpassing physical gift cards. 

“Digital gift card sales served as a lifeline for many small-to-medium-sized businesses (SMBs) during COVID because they enabled businesses to generate revenue even while closed. Factor4 helped numerous retailers set up online gift card solutions during COVID to sell digital gift cards to stay afloat. Today, the demand from SMBs for digital gift cards has grown exponentially with no slowdown in sight,” said Dan Battista, CEO of Factor4.

The global digital gift card market is projected to reach $1.2 trillion in 2032, up from $310.1 billion in 2022, according to a market research firm Custom Market Insights report. In 2023, Custom Market Insights projects sales of digital gift cards will total $399 billion, a more than 28% year-over-year increase. Retailers that sell digital gift cards stand to gain the most increases in revenue and new customers.

Here are two examples of successful digital gift card promotions from Factor4 clients. Two Stones Pub, a six-location gastropub in PA and DE, generated $259,775 in sales during a one-day online holiday gift card promotion in November 2021. Club Champion, a top golf club fitter, builder, and retailer with over 110 studios nationwide, sold nearly 4,800 gift cards during a one-week gift card promotion, a 2,700% increase over the same period that featured no promotion. According to Blackhawk Network, 22% of gift card sales are last minute, and 90% of those sales are digital cards. According to Factor4, only 20% of small businesses offer digital gift cards, so there is a substantial opportunity for SMBs to capture business by offering them. 

Advice for retailers is to partner with Omnichannel gift card solution providers. Omnichannel gift cards are the most desirable because gift cards can be seamlessly purchased and redeemed in-store, online, and via mobile devices. For example, omnichannel solutions enable a gift card to be purchased online, sent to a recipient’s mobile device, and redeemed in-store from that mobile device. Additionally, retailers should choose a gift card partner that offers a robust online gift card solution so retailers can capture digital and last-minute sales. Multi-location retailers should choose a provider with numerous integrations so that locations with different POS systems can all use the same gift card program. Multi-location retailers should also select a provider that offers fund pooling services so gift card funds can be reconciled and dispersed quickly and accurately.

With the holiday season quickly approaching, now is the time for retailers to get ready to sell gift cards. According to the Fiserv Q3 2023 Gift Card Gauge, 65% of consumers will purchase directly from the retailer where the gift card will be used. This represents a significant opportunity for retailers to generate additional revenue, bring in new customers, and reduce attrition. Retailers can maximize gift card sales by selling them in-store or online and offering gift card promotions to entice customers to purchase gift cards. As the popularity of digital and physical gift cards continues to grow, the opportunities for retailers to reap their benefits will also increase.

Citations
[1] “NRF | Holiday shoppers plan to spend 4 percent more this year.”
https://nrf.com/media-center/press-releases/holiday-shoppers-plan-spend-4-percent-more-year
Accessed 28 June 2023

[2] “Top Gift Card Statistics | Giftcards.com.”
https://www.giftcards.com/gift-card-statistics
Accessed 28 June 2023

Resources
https://thestrawgroup.com/gift-card-trends-consumer-preferences-behaviors/