The use of gift cards has seen a meteoric rise in the early years of the 21st century. It is estimated that in 2006, $80 billion in gift cards were expected to change hands. That staggering amount of commerce represented an exceptional 42 percent jump from the year before. As the use of gift cards has grown, so has their use in an increasing range of establishments, around 20 percent of all retail outlets; as their use generalizes and diversifies, so do their uses. Although one might have thought that the advent of widespread gift cards for everything from coffee and candy to haircuts and airline paraphernalia would have sounded the death knell for them, they have flourished. By 2015, the market for retailers topped $1 billion alone.
Gift cards have also changed over the years. Those issued by retailers used to be paper promises to anyone who would take them. But the trend toward specific cards is making it even harder for consumers to change their minds about what they want. In just a few years, phone cards of all kinds have become part of that trendy category called "stored value cards." These cards can be acquired from vending machines, with cash or through a debit card, set to certain specific denominations, and are useful for a wide variety of everyday services and goods. They have crossed borders faster than a worker from south of the border. The market for these stored value cards will surpass $11 billion this year. And the race is on for the lucrative opportunity now opening up to make these items instantly available for normal housewives and compulsive gamblers. In this essay, we address issues related to selling gift cards. What is a gift card exchange? And who uses a gift card exchange? What are the trends in gift card purchases and who sells the cards?
Historical Overview of Gift Cards
Gift cards have a rich history that dates back to frontier America's general stores, markets, and apothecaries, where they were used to purchase goods independently of personal preferences. When the recipient did not personally fancy the goods offered by the issuer, cash-in-redemption programs usually did not exist. Since then, gift certificates have been presented in more formal contexts or used interchangeably with gift cards in recent years. Initially, both vouchers and traditional gift cards were printed on paper stock, included accompanying envelopes or card sleeves, and contained visual references to the merchant or issuer. They sometimes doubled as marketing tools by alluding to the giver's good taste in the selected merchant or hinting at the value of their purchase.
In the mid-1990s, a few of the country's top merchants began systems trials. However, the plastic stored value card evolved considerably from its paper predecessor. Retail gift card programs have faced an almost continuous succession of best and worst practices, technological advancements, legal battles, and industry alliances, resulting in the highly sophisticated product mix of today. For consumers, the gift card can offer a nearly unparalleled value, allowing for convenient purchases, assurance of funds, and selection when used personally or as a remunerative gift. However, economic factors have or have not been responsible for motivating consumer behavior, resulting in the gift card market's current routine levels. Since we know that the recipient of a gift card often views the gift card present as less valuable than one discounted to a percentage of the card's value, its value has become an attractive asset to merchants. Gift cards have also become a staple of consumer shopping behavior, a trend originating with the upwardly mobile in the 1990s, who used them to complement cash gifts.
Current State of Gift Card Exchange Market
Over the past two decades, the gift card exchange market has grown significantly, currently estimated to be between approximately $25 billion and $30 billion and is estimated to grow about 16 percent per year. Fifty-two percent of Americans have exchanged a gift card in their lifetime with 36 percent having done so in the last 12 months making this a popular secondary gift card destination. Thirty-three percent of Americans are consumers or buyers in the secondary gift card market with the expectation that this share will continue to grow. One in five consumers has used one or more means to exchange gift cards for cash in the past year.
Dozens of online exchanges make selling a gift card and then following through with a purchase straightforward and reliable. The choice of which marketplace appears to come down to ease of listing a card, potential for a good offer, and the overall user experience of the platform. Both large aggregating platforms and peer-to-peer exchange offers are currently among consumer options. Over 90% of sellers are satisfied with their exchange companies, while two-thirds of buyers are similarly satisfied. The shop industry is highly fragmented, with the top 10 shops accounting for just over 50% of cards in the system, the top 25 accounting for 65%, and the top 33 accounting for 75%.
COVID-19 has certainly made some impacts in 2020, both behaviorally regarding giving gifts (more prevalent than gift cards) and in consumer spending overall (especially for experiences). These statistical impacts are relevant to the future of the gift card industry, as the retail, restaurant, and other gift card markets recover from the COVID-19 lows. There are a few additional trends to note in relation to digital cards and peer-to-peer exchange. Nearly three-fourths of surveyed consumers say that they have received a digital gift card in the past. While this appears to be limited in the realm of P2P exchange, it might be marginally showing greater association with digital goods and digital card exchanges.
Technological Innovations in Gift Card Exchange
One of the hallmarks of the shift in consumer gift card exchange behavior is the rise of digital platforms that allow people to buy, sell, or swap unwanted gift cards for ones they do want. Digital innovations in the gift card secondary marketplace enhance transaction speed, scalability, customization, control, usefulness, and privacy engineering. Technology has enabled speedier transactions and user experience improvements over traditional paper and card-based secondary markets. It has also made e-gift cards and digital currencies a viable payment method and assets in their own right. The mobile apps leverage location technology to engage customers wherever they consume.
A number of promising use cases help established cryptocurrencies and some blockchain-based protocols serve as alternative assets in the secondary gift card markets. Improved convenience and expanded use cases increase the total addressable market to extract the embedded liquidity latent in stored value assets. Virtual gift cards with multiple accounts provide a multiplication of embedded exchange rates. Different accounts can be used in distinct markets or segments where the exchange rate for dishwashing services differs. The multisig could be used to implement intersectional or inter-mercantile exchange value. The physical and digital aspects are increasingly integrated in marketing and branding, and in online multi-platform and ephemeral partnering. Cyberspace presents new rows of security threats, particularly where digital wallets are involved. Maintaining a high level of encryption and key management is critical for any entity in the gift card business.
To mitigate risk factors in virtual currency and transactions, counter-fraud measures are the responsibility of every blockchain wallet service provider, including compliance with regulations, so hot wallet services do not appeal to dishonest parties. With the rise of digital gift cards, balance checkers, and free item reimbursement fraud, an AI-based fraud model can effectively prevent scams and disasters. This machine learning model will increase effectiveness in the global gift card secondary market, and traders will have confidence in conducting transactions and sending virtual gift cards safely. Converting gift cards into digital currency is desired because of the speed of transactions and the lack of need for intermediaries. The physical nature of a card is far more limited than a card-based virtual asset or a purely digital currency, especially in the retail world.
Consumer Behavior and Preferences
Many consumers purchase and give away gift cards as a gift for someone else. There are also motivations for purchasing gift cards for themselves. Consumers are selling their gift cards, and users include long-time mothers, minimum wage workers, college students, and retirees. Regifting is a common practice, and a principal reason why consumers purchase gift cards is that the recipient asked for one. There are gift card personalities (gifters); essentially, whether a consumer purchases gift cards also influences their tendency to sell them. Women and men have different preferences regarding how they sell their gift cards. Consumers prefer electronic gift cards to physical gift cards.
Consumer choice shifts in the market for gift card exchanges are identified. The market for gift card exchanges is still small relative to its overall potential. There are dual markets for gift card exchanges (purchasers and sellers). The demand for gift card exchanges is variable. The convenience of the two products the two markets offer, however, seems to drive exchange activity, along with consumer affinity towards a particular gift card brand. What kind of discount do consumers expect when purchasing or selling gift cards? The answer depends on a number of factors: the kind of gift card, the method of the transaction, and the demographics of the participants. Higher-priced physical gift cards attract a lower discount than those sold at lower denominations. Information scarcity contributes to gift card exchange discounts. Social factors help reduce discounts. Peers influence the choice of when or where to purchase or sell a gift card. Surveyed individuals like to get advice on gift card exchanges and check online reviews. Would lower exchange prices satisfy consumers selling gift cards? The answer is "no"; since low-price sellers report low-value gift cards. Consumers expect the markup for gift card exchanges to be small but are disappointed to learn what sellers experience. Technology usage influences a consumer’s satisfaction with the results of the gift card exchange process.
Key Players in the Gift Card Exchange Industry
The advances and diversification of the gift card exchange industry would have been almost unthinkable without the following market participants: major retailers that are interested in entering the secondary gift card field; fintech companies that see a lucrative business model in the development of the secondary market and have been offering B2C and B2B platforms and services; and peer-to-peer platforms that strive to connect willing buyers and sellers of gift cards. Major retailers, fintech companies, and peer-to-peer platforms have built up their business in the gift card exchange market by offering unique selling propositions. While many of the peer-to-peer platforms take a purely defensive approach, providing opportunities for consumer welfare to trade cards in a few niches or providing electronic vouchers, some have focused on attracting large turnovers of cards in specific niche markets.
The major retailers enjoy a solid position among gift card consumers because they already have a relationship with them. Instead of making the effort to find another source that is in the business of going in two directions, retailers typically prefer to keep and spend the cards on their products or services at the cost incurred. An open question is whether the major retailers are now in the process of migrating to markets that they do not normally serve either because of a limited geographical presence or because of an increase in trust in web-based platforms. Mergers and acquisitions have always been a topic of discussion in the gift card exchange market. Large new entrants factoring and risk management company made a move when it completed its acquisition of firms. The large internet company has been active in M&A with its acquisition of firms. No acquirer rebranded their new assets; they simply continue with the brands that they acquired. Coordination of cross-brand integration seems to be one of two major difficulties this industry is currently facing. The second seems to be that recent acquisitions have been slow in terms of the development of new services or markets. The confidence gap is formed because some market participants are struggling in terms of defining a forward-looking strategy. Major retailers seek to define the market in their way while others have yet to face their business proposition directly. Where would you put yourself on this graph? For what reason? Share your thoughts with us. Overall, it could be argued that the biggest challenges faced by the key industry players are in the realm of consumer understanding and insight in this nascent market. For the most part, the industry participants are testing products with the hope of attracting a myriad of consumers who want a gift card for less or the ability to swap or convert these units into cash. Unfortunately, many such players have not bothered to define their markets or develop the business models that will be used to attract such confused and distractible consumers. Moreover, the combination of a lack of industry knowledge and the continued deflationary price environment presents a potent combination for potential dropping out by some major players.
Global Market Trends
Currently, gift cards exist in 200 countries, and the exchange of gift cards can take place in different ways. However, the market for trading digital gift cards is relatively new and is at various stages in different countries. There is a wide variety in the level of adoption of gift cards worldwide. In the United States, consumers seem to love the convenience and suggested personal preference of giving and receiving a gift card. Brazilian and Spanish consumers, on the other hand, appreciate getting a gift card but are less likely to give them. Gift cards, in general, get more popular when retailers use them in their physical stores, not online. Digitally savvy young consumers in emerging markets may well develop a taste for online gift cards in the future. The global market for gift cards in 2019 was worth 732 billion USD. This decrease is attributed to poor holiday sales. The report expects the downturn to be over by 2021 as the US economy improves. People can also choose to give cash, of course; if this equals a regular gift card, the gift card total is larger, yet the difference isn’t large enough for regular gift card spending habits to be explored in depth. Despite a decline in overall retail gift card sales in 2019, other forms of gift card sales did grow. In the B2B arena, open-loop gift card sales increased by 7.4%. In the B2B market area, companies and employees alike favor gift cards. Only the HR department uses gift cards for a wide number of business purposes, including as thank-yous. A Dutch e-commerce company with 12 employees annually gives away €12,000 worth of gift cards, from €500 to €250 per person. The director explains that employees may spend the gift cards in the webshop on personal as well as professional gifts.
Challenges and Opportunities in the Gift Card Exchange Sector
Economic downturns, and more specifically high unemployment, can have negative effects on the overall gift card sector in terms of sales when money is tight and gift cards are not a top gifting priority. It can also depress the value of gift cards in the secondary market as supply is driven by people converting their unwanted gift cards to cash. Despite such challenges, there remain untapped opportunities in the gift card exchange market. For instance, potential growth in the gift card exchange sector would be attractive to venturesome entrepreneurs. A number of trends in the economic and business arenas favor new entrants' success: (1) the selling off of non-core activities such as gift cards of large corporations, (2) the increased flexibility and freedom of management to be innovative and responsive in a fast-moving market, (3) the convergence between the products of non-gift and gift products in transactions that involve creating, billing, and maintaining new lines of communication with consumers.
The failure of settlement and litigation casts a further shadow on the sector. However, the gift card market for new entrants looks increasingly lucrative based on market metrics: $274 million is spent on gift cards a year, as seventy percent of the country's eighty-nine consumers have purchased a gift card in the past year. While it is true that today's gift card exchange companies face difficulties in the key areas of fraud, publicity, and compliance in a sea of start-ups in a few short years, from 2006 to the present, 160 new companies formed in the sector, resulting in major industry "clutter." Nevertheless, the future for gift card traders looks bright, with three underpinning reasons. First of all, market catastrophe has assisted in getting rid of the most susceptible, while plenty of newcomers have also put faith in their bright ideas, resulting in them keeping their stake in the market and becoming the most obvious new industry spokespeople. Such a self-selection of potential market leaders has contributed to a net industry growth of approximately 200.3 percent. Secondly, the most difficult challenge to overcome was the high failure rate that hindered early market entrance. More importantly, firms that were more likely to be offering their goods and services used third-party insurance to relieve concerns about appearing before the law. Third, it was found that sales techniques, being the most resistant to litigation, incurred up to 50 percent less risk of product returns.
Sustainability and Ethical Considerations in Gift Card Exchange
However, sustainability has not been broadly considered in the secondary market, nor in the original sale of gift cards. Consider the footprint of physical gift cards with plastic and chemicals, compared to digital gift cards reliant on large-scale data centers to manage the storage and transaction of traded gift cards. The void in authentic, transparent processes in the market provides opportunities for businesses and corporations to champion and support a more responsible consumer with data-supported awareness of gift card redemption practices and strategies within the program. From an industry response, part of this has seen companies take initiatives on sustainability, such as advocating against plastic and focusing on digital content. At the societal level, waste, unspent funds, and fees involved in exchanging gift cards have reduced in overall scale as the innovative nature of new products and services allows for gifting experiences for which data is significantly harder to source. Gifting professionals made a similar claim, stating that the known wastage in the gift card market was the time and money spent returning unwanted physical gift cards and then purchasing other goods. To an extent, both the societal and marketing lenses shape attitudes about material waste, opulence, need, and consumer ethics. Attitudes of societal norms contribute to waste, and the morality tied to this provides clear opportunities for consumer-facing businesses, showcasing their responsible practices around gift card programs, encouraging new and returning business, and generating greater returns on their investment. Ethical gift card retailing and perceptions of wealth accompany consumer responsibilities. Consumerism is supported by capitalist ideology, wherein both the quality and quantity of goods determine a person's value. Such attitudes result in concerns about pretense and 'mendaciousness' stemming from the etiquette dictating expressions of fortune, both in gift-giving and receiving, which create a significant amount of societal waste. Demonstrating a changed approach to being wasteful will likely yield consumer goodwill, as Corporate Social Responsibility cannot be more transparent than in the gift card market.
Emerging Technologies
Mobile Payments: Instead of charging a price on customer transactions, there are rumors that this application will request a small subscription payment from retailers to capture broad access to its demographic information or customer preferences. The chief technological officer of an anonymous credit card processing company believes that a secret exclusive app linked to gift cards could pay for the cost of a marketing blitz. Other references to tech tools that help retail marketing are in Project Front Page. These theories give the public food for thought when it comes to technology and the way the current market values users. This is further explored for potential integration within the methodology building foundation.
Data Analytics: Both of our interviewees indicate that technology improvements will be explicit, especially with data analytics, and how intelligence behind technology can be used to mirror and offer greater efficiency to gift or spend loyalty in unique ways. Two case studies from different industries show the use of advanced data technology in a contemporary landscape with the regrettable impact that now Proof of Permission of Currency can quantify the perpetual supply and demand of cryptocurrencies and obdurate tokens based on a 'Permission of Use' scale.
