NEEDHAM, Mass. — With the holidays fast approaching, 'tis the season for gift cards. This relatively new segment of the U.S. payments industry continues to show rapid growth — particularly in the area of bank-issued or "universal" gift cards that can be used beyond just a single retailer. Yet in some cases, gift cards appear to make better presents for retailers and card issuers than the actual giver or receiver.
Research and advisory firm, TowerGroup, expects gift cards to be a major hit again this holiday season. Combined gift card sales in the United States will exceed $80 billion in 2006, a more than 20 percent increase over their 2005 level. The group said the restaurant industry will achieve $18 billion in sales.
Restaurant / Fast Food
Miscellaneous (gas, services, etc.)
Universally accepted (i.e., bank-issued)
But there are still some major issues surrounding gift cards, the organization said.
While retailers do not generate revenue until a card is either used or permitted to be declared as dormant, they do receive a "free float" on unused cards.
TowerGroup said that the unused value on these cards, often referred to as "breakage" in the payments industry, has a bigger impact on consumers than the combined total of both debit and credit card fraud.