Studies: Gift Cards Preferred to Higher-Value Gifts, While Many Prepaid Holders Are Banked

As the prepaid card market matures, more data are emerging about surprising consumer behavior regarding prepaid cards or that challenge the conventional wisdom. For example, research commissioned by big processor First Data Corp., a major player in the prepaid space, found that given a choice between taking a gift or a gift card, many consumers would take a gift card of far lesser value. And findings from Aite Group LLC conflict with notions that all prepaid card holders are low-income consumers disconnected from conventional banking services.

Among other topics, Atlanta-based First Data tried to assess the perceived value of a gift card in what it calls its Consumer Insights online survey of 2,025 consumers last August and September. When asked if they would take a gift valued at $20 to $45 versus a $25 gift card, the vast majority of consumers took the card. With a $25 gift, only 13% took the gift against 87% taking the card. With a $30 gift, 79% still took the card against only 21% preferring the gift. Even with a gift valued at $45, 52% of respondents still preferred $25 card.

Only when the value was above $45 did most consumers start preferring an actual gift, says Michael D. Hursta, vice president and prepaid category manager at First Data. The psychology apparently is that gift cards assuage consumer fears of appearing selfish when making discretionary purchases. “A gift card removes the guilt, it gives you a license to spend on yourself,” says Hursta.

A few in the survey group bucked the trend: When asked to choose between a $20 gift and a $25 gift card, 92% took the card but 8% preferred the gift.

Meanwhile, research by Boston-based Aite last year found that many users of general-purpose reloadable (GPR) prepaid cards are not the poor, unbanked group of consumers that’s nearly become a stereotype of the prepaid card customer.

In a survey of 500 users of alternative financial services, including 250 holders of prepaid cards, Aite found that one-third of the cardholders had middle-class annual incomes of $45,000 or more, and 34% had a college degree. Clearly, many prepaid cardholders are “not downtrodden,” said Madeline K. Aufseeser, an Aite senior analyst who moderated a panel session at last week’s Prepaid Expo conference in Las Vegas.

What’s more, 65% had a checking account, and 80% of those account holders had a conventional debit card. “These consumers do have banking relationships,” says Aufseeser.

Sixty-seven percent of the prepaid card holders used the cards for purchases: 40% in stores and restaurants, and 27% online. Some 43% of GPR cardholders own a smart phone, about double the rate of holders of single-purpose, or closed-loop, cardholders, according to Aite’s findings.