U.S. Gift Card Market to See Rapid Sales Growth Through 2007

Further, gift card dollar volume grew 50% from 2002 to 2003, totaling close to $45 billion in sales in 2003. TowerGroup projects significant growth for gift cards through 2007, to more than $90 billion in sales. Yet the picture for gift cards has not been entirely rosy. Since the 2003 holiday season, numerous negative stories in the press have cast these products as the gift that keeps on taking - focusing on expiration periods and fees for inactive cards. Several states have already moved to regulate gift card fees. However, TowerGroups new research underscores that not all gift cards are alike. Highlights of the research include: A closer look at the two types of gift cards currently on the market shows that they are very different products, offered by different types of organizations and with different business models and objectives. Gift cards issued by retailers are designed to be a loyalty product and to presell merchandise. Bank-issued gift cards are, however, financial instruments. And as with all financial products, the issuer earns income on fees. Bank-issued gift cards, introduced in late 2002, really hit the market in 2003 for the first time. These products have greater versatility than retailer gift cards, and of the two gift card categories, are poised for the greater percentage growth over the next five years. Because bank-issued gift cards are financial instruments and should be treated as such, TowerGroup believes it is not appropriate to place restrictions on their fees. Issuing financial institutions bear significant costs for marketing, selling and servicing gift card accounts. And in providing zero liability for lost or stolen cards, institutions protect consumers by absorbing the cost of fraud. Finally, while individual cards may expire, the account itself does not - allowing consumers flexibility to maintain an account over time. Without charging fees to help support these benefits, institutions simply could not afford to offer the product.