Report: Online Gift Card Bazaars Will Grow with the Plastic’s Popularity

Although it's a minuscule portion of the total value of retailer-issued gift cards sold in the U.S., the nascent aftermarket for these cards is set for a boom, according to recent research by TowerGroup Inc., Needham, Mass. About 4,500 cards are currently available for auction on a number of recently established Web sites?or online trading posts, as TowerGroup dubs them?accounting for some $279,000 in total value, based on an average per-card value of $62. That's a mere 0.001% of the total value loaded on retailer gift cards last year, but with the exploding popularity of gift cards, the research firm expects that proportion to rise rapidly, noting that “the growth in the use of gift cards will continue to expand the overall opportunity for aftermarket gift card sales and trading posts, and we expect utilization of these and similar services to increase accordingly.” TowerGroup says merchants should view the rise of auction sites for gift cards as a welcome development, as it offers a way to tap card value that would otherwise go unredeemed, accelerating revenue recognition for merchants and allowing them to avoid so-called escheatment issues, which come into play with cards on which prepaid value is seen as abandoned. An estimated 12% to 14% of all merchant gift cards go unredeemed, in many cases because the recipient doesn't shop at?or doesn't want products from?the issuing retailer. “The amount outstanding on cards that languish is significant,” says TowerGroup senior analyst Ed Kountz in the report, “Trading Places: Parsing the Benefits and Risks of US Online Merchant Gift Card Trading Posts.” Recipients may be stuck with the cards, as in many cases they can't be returned, or can't be returned without a receipt. As a result, a number of new sites with such names as certificateswap.com, cardavenue.com, and swapagift.com, have sprung up to allow gift card recipients to sell or trade their unwanted cards with other individuals. Online auctioneer eBay Inc. has also set up a section for gift card swaps, though unlike the other sites it doesn't allow card-for-card swaps. Indeed, eBay accounts for some 3,500 of the cards now listed by the major sites. The sites require buyers and sellers to register, a process in which they provide user names, passwords, mailing addresses, and a PayPal or credit card account number. Sellers will usually pay a listing fee per card and must document the balance on the card. Transaction fees are charged to the seller, and can range up to 7.5% of the value of the sale. Sites will often try to verify the balance themselves, and may refuse to list cards when they can't. Buyers can bid cash for the card or offer other cards in trade, but must give their user account information to prove their bids are valid. Once the transaction is completed, the site sends a confirmation e-mail to the parties, and the seller is responsible for fulfillment. Although TowerGroup recommends that issuers of gift cards support the auction sites, it also warns that traders can be victimized by criminals, either through fraudulent transactions or fake cards. It also cautions that some criminals might be tempted to use the sites as money-laundering schemes. Finally, it warns that some gift cards may carry restrictions on re-sale, while the increasing trend toward personalizing cards could further complicate online swapping.