Exploring the Rise of the Gift Card Industry

Kinnary Nensee Kinnary Nensee
Dec 1, 2022 5 min read
Exploring the Rise of the Gift Card Industry

A prepaid stored-value money card, issued by a retailer or a bank that is used as an alternative to cash, for purchases within a particular store or related businesses is known as a gift card. They can generally be redeemed for purchases at relevant retail stores and, often, be subject to fees or expiry dates. Such gift cards are given by individuals to friends or family members in place of an object as a gift. They are also given by employers or organizations to their employees as rewards linked to either festivals or performances. There are generic gift cards available, usually issued by banks like American Express or even Visa, for cashback marketing strategies. Other companies like airlines, cruise ships, hotels, theme parks, and restaurants also offer gift cards in an effort to earn repeat business.

History of Gift Cards
Gift Card Market Insight
Factors Impacting the Growth of the Gift Card Industry
Advantages of Gift Cards
Areas of Concern for Gift Cards

History of Gift Cards

Gift Certificates were the predecessor of the more modern gift cards. They were first invented in the 1930s by department stores. However, gift certificates were available to only limited customers, and that too only on request. Gift certificates gained popularity in the 1970s when McDonald’s first ran the campaign by giving out Christmas Gift Certificates. The trend caught on quickly with many stores, restaurants, and retailers joining the gift certificate bandwagon.

However, as beneficial as gift certificates were, there were a few issues attached to them. The process of issuing and redeeming gift cards was time-consuming and there were a lot of fraudulent activities which resulted in retailers losing a large amount of revenue. It was in the 1990s that gift cards entered the market that addressed the issues faced with gift certificates.

The Smithsonian magazine states that gift cards were first produced by the luxury departmental store Neiman Marcus in 1994. However, they did not market them to their consumers and hence, Blockbuster is officially considered the first company to market plastic gift cards to the masses. They test-marketed them in 1995 and launched them in the USA the next year. These gift cards replaced Blockbuster’s gift certificates and were processed by Nabanco of Sunrise, Florida.

From then, the gift card industry witnessed significant growth as the concept of gift cards extended to different renowned brands. Many other retailers adopted the gift card program in a bid to remove their gift certificate programs. Issuing cash cards instead of cash for non-receipted returns became a popular practice with merchants. In the year 2001, Starbucks was the first company to launch reloadable gift cards.

Gift Card Market Insight

Gift Card Market Revenue Worldwide

The global gift card market size was recorded at USD 437.78 billion in 2020. It is estimated to grow at a CAGR of 15.4% to reach a market size of USD 1396.01 billion between 2021 and 2028. According to regional market analysis, during the same period between 2021 and 2028, the Asia-Pacific Gift Card market is predicted to grow by a CAGR of 16.0% to generate a revenue of USD 301.54 billion. Between 2022 and 2027 India’s gift card market is expected to grow at a CAGR of over 19.1% to reach a market value of USD 93.96 billion by 2027.

Factors Impacting the Growth of the Gift Card Industry

Covid-19 Pandemic

The pandemic resulted in global lockdowns which in turn resulted in travel restrictions and financial market disturbances. It adversely affected every industry severely disturbing supply chains and production levels. The gift card market was no exception as the focus shifted from physical gift cards to digital gift cards as demand increased due to convenient availability and ease of use.

Increase in the Use of Smartphones

The rapid evolution of smartphones has ensured the increased innovation of gift cards. Smartphone penetration has provided customers with flexible and convenient payment options which, in turn, has boosted the gift card market. Modern technology and marketing strategies have created different ways for users to purchase digital gift cards as the industry moves from plastic cards to digital cards.

Advantages of Gift Cards

Be it digital or plastic cards, gift cards are a marketing strategy that is beneficial to businesses in multiple ways.

Raising Brand Awareness

Gift cards are a cost-effective promotion technique that keeps the brand at the forefront of the customer’s mind. Virtual gift cards can promote brand messages with online customers. As people purchase and deliver gift cards to friends and family for special occasions, the brand achieves higher visibility and more customers. Gift cards work as an effective marketing tool.

Increased Customer Engagement

The gift Card program is a customer engagement exercise that not only encourages and builds customer loyalty but also further markets the brand to new potential clients.

Boosts Sales

Gift cards have a set specific amount loaded onto them. However, most often, customers will purchase items higher in value than gift cards. It is a bargain for the customer as they pay for only a fraction of the value and the experience leaves them fulfilled.

Convenience and Reliability

The digital gift cards available today are reliable and convenient to use. They can be accepted online, in-store or in-app which makes them safe from loss, theft, or fraud.

Provide Useful Data

Data is equivalent to money in any business. Gift cards help collect vital customer data as brands learn about customer preferences through their usage.

Areas of Concern for Gift Cards

The primary area of concern for gift cards is their lack of security. The case in point was Distil Networks which discovered GiftGhostBot that attacked almost 1000 websites to find gift cards which led to a breach of access to their balance. Additionally, many companies, in an effort to roll out gift cards quickly and cheaply have, inadvertently, overlooked security risks that can allow any shopper to use money that is loaded on another shopper’s gift card. These security threats can prove to be a major hindrance to the gift card market growth.

Conclusion

The evolution of the Gift Card industry has been revolutionary. Their functions and benefits are immense. If the concern areas are addressed strongly, this is an industry that is set to grow exponentially in the coming years.

FAQs

What is a gift card?

A card entitling the recipient to receive goods or services of a specified value from the issuer is known as a gift card.

Who are the top online gifting startups in India?

Some of the top online gifting startups are Qwikcilver Solutions, Indigifts, Wedtree, BigSmall, Giftsvilla, and more.

What transactions are permitted by gift cards?

It can then be used to make any purchase for which payment is made electronically.

Can gift cards be used as cash?

You cannot use gift cards to withdraw cash.

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