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NEW YORK -- A clearer understanding of usage terms will help boost sales of gift cards by nearly $14 billion over the next five years, according to a new report from market research firm Packaged Facts.
Gift cards, which lead the closed-loop segment of the $81 billion prepaid card market, have steadily gained popularity among consumers since 2002, when they were categorized in the catch-all "other" category of in-store payments, according to "The U.S. Market for Prepaid Cards with a Focus on Gift Cards."
In 2003, however, cards became their own line item on the survey, accounting for 2 percent of all sales, a number that doubled in 2005, according to the study.
"Gift cards have been accepted by the mainstream for an increasing variety of events in which gifts are normally exchanged, and for an increasing variety of ways to spend those gift card funds," said Tatjana Meerman, publisher of Packaged Facts. "They are revenue drivers for merchants, who benefit from consumers' tendencies to spend more in the store, for banks, who charge fees for use and benefit from increased electronic transactions, and for third party processors, who provide back-end processing and maintenance."
Although regulatory issues and consumer concerns about extra costs and time restraints may restrain growth, the report found that consumers are learning to differentiate among cards based on fees. In addition, the industry, especially the retail sector, has taken steps to remove certain fees from their cards, making them more desirable.
Nearly 35 percent of consumers who purchased gift cards in the last 12 months anticipate spending more on gift cards during the next 12 months, with 9.1 percent expecting to spend "significantly more." Fifty-three percent of gift card redeemers reported that they often or always spend more than the card value, and most likely over two store visits rather than one.
The study profiles eight players in the prepaid gift card market, and identifies key strategies and trends.
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