Digital Versions Will Help Propel a Strong Holiday Season for Closed-Loop Gift Cards

By John Stewart

Market signals may be mixed, but on balance the 2015 holiday season will be a merry one for plastic and digital gift cards, according to Mercator Advisory Group.

The Maynard, Mass.-based research firm’s annual forecast for November and December estimates loads on closed-loop U.S. gift cards will total $43.8 billion, up 6% from the same period last year. That total, combined with last year’s number, indicates holiday gift card loads are back on an upswing. They reached $42.6 billion in 2011, only to slip the next two years, reaching a low point of $38.6 billion in 2013.

Why the resurgence? After all, as Mercator’s report concedes, consumer preferences appear to be sending a mixed message on gift cards. On the one hand, a Deloitte LLP survey found 46% of consumers plan to buy gift cards, compared with 43% last year, with the average spend per card rising from $159 to $164.

But the National Retail Federation is less sanguine. Its survey shows that, while the proportion of people who want a gift card is a robust 58.8%, that figure is actually down from 62% last year. The retailer trade group also disagrees with Deloitte on spend per card, with a $153 estimate for 2015 compared with $172 last year.

Mercator leans toward an optimistic outlook. For one thing, digital channels are steadily becoming a more prominent means for gift card distribution, the firm’s report says. It forecasts that loads on electronic gift cards, the kind consumers buy and send using PCs or mobile devices, will fall between $2.2 billion and $4.4 billion during this holiday season, or between 5% and 10% of total loads.

Ben Jackson, director of the prepaid advisory service at Mercator and author of the report, tells Digital Transactions News the final number is likely to be toward the high end of that range. Last year’s number, he estimates, was a bit more than $3 billion.

Other research has also found a higher profile for e-gift cards. Indeed, researcher Bankrate.com last month reported that, of some 60 proprietary and general-purpose gift cards studied, some two-thirds were available in digital versions, up from 59% the year before.

Mercator also projects that merchant discounting will lead to an underappreciation of actual gift card spend. Like all other merchandise, gift cards can be promoted with discounts, Mercator points out. So 10% off on a $300 card means the card will be sold for $270 but still loaded with $300 in value, for example. For that reason, Mercator advises keeping an eye on load value rather than sales figures.

With or without discounting, a number of merchants are clearly expecting strong gift card volume, up to and including Christmas Eve. Coffee kingpin Starbucks Corp., for example, reported this week it expects record sales of its proprietary Starbucks Card on Dec. 24. Last year, the company sold almost 2.5 million of the gift cards that day in the U.S. and Canada.

“Despite mixed signals from the marketplace, the holiday season looks like it will be good for closed-loop gift card loads,” says the Mercator report. “Gift cards remain popular among consumers because their fundamental value remains the same: closed-loop cards show that the giver knows what the receiver likes while also giving the receiver a choice.”