It can be difficult to choose the perfect gift! This is just one reason why consumers are planning to purchase gift cards this year. Many believe that gift cards give recipients the freedom to choose what they really want—whether it’s a night out, a luxury item, or a grocery trip.
In a recent PaymentsJournal webinar, Sarah Kositzke, Director of Research and Jay Jaffin, Chief Marketing Officer at Blackhawk Network (BHN), along with Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research, discussed gift card purchasing and redemption trends, sustainability, year-round gifting and gift cards as incentives.
Economic Impacts and Key Trends
There are mixed messages in the macroeconomic environment. It appears that inflation is slowing, but prices are still 25% to 30% higher than just a few years ago. Consumer confidence is trending up, however, and retail sales are expected to rise by 3% year-over-year.
On the topic of omni-commerce, Kositzke noted that it has been redefined, and “it no longer means just a physical store and a website. It is evolving to include an entire ecosystem where consumers interact with brands from apps and social media to the influencers to the in-store experience.”
Continuing to trend this year is the shift to mobile payments. Around half of U.S. adults use mobile payments, which has, in turn, driven demand for digital gift cards. Buy-now-pay-later (BNPL), is also projected to grow by 50% next year. These emerging payment methods make it critical for merchants to offer multiple payment options at the point of sale.
Sustainability is also playing a larger role in purchasing decisions, with roughly two-thirds of consumers willing to pay a bit more for sustainable products.
“There is an opportunity here for the gift card industry,” Jaffin said. “They may seem like little pieces of plastic, but creating the raw materials for plastic gift cards takes about four times as much carbon as it does for durable paper stock gift cards. The reality is, it’s good for the planet, but it’s also good for business. Consumers want options like paper gift cards instead of plastic because they’re recyclable.”
Consumer Purchasing Habits
Not only do consumers spend the amount they receive on a gift card, but nearly six in 10 spend more than the value of the card.
“It’s really helping to increase the overall shopping basket, and also extending the brand beyond the traditional gift card value,” Kositzke said. “You get the chance to build a loyal customer, which often happens when they receive that initial gift card. About a quarter of people got a gift card to a new brand last holiday, which is a great opportunity for them to try something they never had on their radar.”
Thinking about where people are buying gift cards, consumers generally go to merchants they trust, both in-store or online. In-store gift card purchasing is often driven by convenience; the customer either happened to drive by or already had the stop scheduled along the way.
“In-store still dominates, but about half of consumers are buying cards online and it’s rising,” Kositzke said. “The key is putting your gift cards where people want to shop. A lot of folks use smartphones to make purchases and gift cards fall into that category, so optimizing that mobile strategy is important, especially as we see the demand for digital gift cards growing.”
Most digital gift cards are delivered by email, but SMS and messenger app delivery are increasing in popularity. That has been driven by preferences among younger consumers who expect a digital-first experience. For that reason, drop-to-wallet functionality will be critical going forward as more users adopt digital wallets.
Digital gift card growth will also accelerate due to the convenience factor. In many cases, a digital card might be the only option, like when the recipient lives far away or can only accept a digital card. Digital cards also offer more personalization options, where the sender can add a personalized video or picture.
“However, there is still room for improvement with digital gift cards,” Kositzke said. “There’s a demand for better digital delivery, because emails can be difficult to sift through. If the consumer can get a text message and upload the gift card seamlessly to a digital wallet, there’s a better chance they will use it. Today only about 45% of people are storing gift cards in wallets.”
Fraud Prevention
Financial crimes are an ongoing challenge, so a strong risk management and fraud prevention program is essential for protecting both your business, and your customers.
“Gift card fraud has gotten more attention lately, and, as an industry, it’s our responsibility to take on this challenge and protect our customers,” Jaffin said. “On the merchant end, businesses should report any suspicious activity to law enforcement immediately, because many times fraud is part of a larger operation.”
Another critical aspect of gift card fraud prevention is consumer education, especially around the holidays. Wherever consumers buy gift cards, there should be signage or e-mail communications directing customers to inspect the gift card’s packaging for tampering.
Year-Round Gifting
Birthdays are the number one occasion where gift cards are given, followed by the year-end holidays. However, gift cards are increasingly being given in all types of situations. In the workplace, for instance, they can be a powerful way to incentivize workers.
“It’s a great mechanism to motivate your teams,” Jaffin said. “For example, there is a platform that allows managers to deliver a gift card directly through Microsoft Teams in a team meeting. Not only do you get to recognize an employee, but the entire team gets to see it and it becomes an event.”
Many consumers are also using gift cards for personal spending. Prepaid and gift cards can be useful alternatives to high-interest credit cards in a tough economy. Many consumers report using prepaid cards to control their spending, and 19% said they use gift cards to manage their budget.
In the case of a customer dispute, merchants can offer a gift card as an appeasement, both resolving the issue and retaining the customer’s loyalty. Additionally, gift cards serve as a great reward for customers who have remained loyal to a brand.
“It’s really for any moment when you want to say thank you, whether it’s to the teachers, delivery drivers, or bus drivers,” Kositzke said. “It’s effective and it’s sought-after all year, so companies should have likewise have a gift card plan that stretches the entire year. From small moments to big moments, gift cards are given year-round.”
To learn more about U.S. shoppers’ attitudes toward gift cards, download BHN’s recent e-book, 2024 Could be a Shockingly New, Shockingly Normal Year for Gift Cards.
To learn more about what industry participants can do to mitigate gift card fraud, download BHN’s recent e-book, The Broad Report 2024, the State of Gift Card Fraud.