Consumer gift card purchases follow retail slump

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After five years of steady growth, U.S. consumers are pulling back on buying all types of prepaid cards — including retail gift cards, a new study from Mercator Advisory Group suggests.

Though prepaid and gift cards remain very popular, their momentum appears to be slowing, with only 56% of U.S. adults buying a prepaid or gift card during the past year, down from 63% during the previous year, said Karen Augustine, manager of primary data at Mercator.

This is due to a combination of economic and consumer shifts, Augustine said. Consumers bought fewer prepaid and gift cards in all categories, but open-loop and retailer-branded gift cards showed a marked decline, Augustine said.

“Brick-and-mortar retailers are under pressure, with rising bankruptcies and slowing sales, and that’s reflected with consumers buying fewer cards at stores,” she said.

Sales of prepaid and gift cards peaked last year, with 63% of consumers reporting a purchase within the previous 12 months, according to Mercator’s study. Maynard, Mass.-based Mercator surveyed 3,000 U.S. adults for its annual survey in June 2017.

The niche with the least sales erosion over the last year was general purpose reloadable cards, according to Mercator’s data.

“GPR cards showed the least volatility among all types of prepaid and gift cards, which may be due to the fact that even with the improving economy, many unbanked and underbanked people continue to use GPR cards as financial management tool,” she said.

Concurrent with this trend, the prepaid card industry has seen significant consolidation in recent months. Gift card giant Blackhawk Network last month paid $175 million to acquire CashStar, a digital gift card operator, combining online and offline gift card resources.

Days earlier, American Express announced plans to sell Serve, its prepaid card platform, to InComm Holdings for $300 million.

“Prepaid and gift cards aren’t going away, but there are changes ahead as technology introduces new ways to pay via peer-to-peer payments like Venmo and Zelle and mobile and e-commerce shake up traditional retail sales and related gift cards,” Augustine said.

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