Tight Economy Causes 5% Drop in Use of Prepaid and Gift Cards in 2009; Market Rebounding in 2010

Apr 1, 2010

Tight Economy Causes 5% Drop in Use of Prepaid and Gift Cards in 2009; Market Rebounding in 2010

Javelin: Regulatory Restrictions and Industry Maturation Will Lead to Lower Fees, Higher Sales Volume, Innovation, Product Consistency and Industry Consolidation

San Francisco, CA, March 30, 2010 – In a new report issued today, Javelin Strategy & Research (www.javelinstrategy.com) reports that amidst the recession, U.S.  consumer usage of prepaid and gift cards dropped from 66% in 2008 to 61% in 2009. The decline in gift card sales and value began to turn around by the end of 2009 and will regain momentum in 2010 along with prepaid products. The report is based on our latest annual payments survey of 3,294 consumers, vendor interviews and Javelin expert strategic  analysis.

Per the 2010 Prepaid and Gift Card Market report, companies that focus on the right features, messages and market trends can compel more consumers to buy more stored value and gift cards. “As an example while overall use dropped in 2009, in the online channel pay-before products such as prepaid and gift cards are flourishing.” said Mary Monahan, Managing Partner and Research Director. “Government regulations that restrict gift card fees and expiration dates favor consumers and are vital to building the trust that can build adoption and use. Lower costs and enhanced functionality are luring consumers back and boosting the volume and dollar value of cards they purchase.”

Regulatory issues and industry maturation are also driving greater product innovation, consistency and consolidation of players in the market. The market need for one-stop shop, end-to-end providers may result in increased vertical integration versus the multiple niche players in the market today.

The Javelin report discusses the key trends and users of prepaid and gift cards and the market forces influencing change in the prepaid and gift card markets. Despite last year’s drop,  Javelin forecasts that prepaid usage will more than double by 2014 and gift cards to more than triple (the latter expected to attain $6B five years into the future). The report examines how the major card networks –American Express, Discover Network, MasterCard International and Visa Inc.– are driving prepaid and gift card business. The study also explores how  merchants – and in particular, Western Union, Walmart and H&R Block Bank – are positioning themselves strategically to build demand for prepaid and gift cards.

Key Report Findings – Prepaid and Gift Card Market
•    Consumer use of prepaid and gift cards dropped in 2009, but usage is bouncing back in 2010 as regulation reduces fees and consumers have less accessibility to credit.
•    Overall, 56% of consumers used a gift card in the past year; less than half that many used a prepaid card. Providers can increase the use of prepaid cards by encouraging recurring use, as the report describes.
•    More than one in every five American households lacks a checking and/or savings account. One in five underbanked consumers have used a prepaid card in the last 90 days, making prepaid a way to access unbanked and underbanked consumers.
•    The demographic of consumers receptive to prepaid and gift cards is evolving as merchants and service providers offer innovative products such as payroll and travel, new access methods such as Internet and mobile devices, and options such as micropayments and teen spending controls.
•    Industry consolidation of the fragmented prepaid and gift card market is likely to accelerate throughout 2010, elevating the importance of this market for merger and acquisition specialists. An increase in vertical integration may also occur, with consumers and businesses preferring one-stop shop, end-to-end providers to the many niche players participating in the market today.
“Savvy providers who want to stay in the game should jump on this opening in the market,” said Beth Robertson, Director of Payments Research “They can promote recurring use of prepaid cards through features, messages and programs, while building trust with unbanked and underbanked consumers”

About Javelin Strategy & Research
Javelin provides superior direction on key facts and forces that materially determine the success of customer-facing financial services, payments and security initiatives. Our advantages are rigorous process, independent position, and expert people. For more information about this or other Javelin reports, please visit www.javelinstrategy.com/research or contact Elizabeth Travers at (925) 225-9100 ext. 31 or etravers@javelinstrategy.com.

Note: To arrange an interview with a research analyst and/or view available research (available to qualified members of the media), please contact Elizabeth Travers at +1.925.225.9100 ext. 31 or etravers@javelinstrategy.com.