The Prepaid Press - December 15, 2007 - (Page 21)

TELECOM & TECHNOLOGY December 15 · 2007 - 21 Gift Cards Lost in Translation By Rick Redding If anything can slow the momentum of gift card sales, maybe this ﬁgure will do it: $8 billion. That’s the amount consumers lost in gift card purchases that, for one reason or another, were never redeemed, according to a Tower Group report. Put another way, the use of gift cards is taking a big bite out of consumers’ spending power and depositing it into the balance sheets of banks and retailers. locations and working increasingly to make the cards easy to use. Individual retailers, like Target, advertise their cards as featuring no expiration dates and no fees. Studies show that consumers have adopted gift cards as a solution to their gift-giving dilemma. Better than the crass concept of giving cash, providing a gift card from a particular store shows that the gifter at least thought about the type of store the recipient would enjoy. So instead of trying to ﬁgure out the right video game for a teen-ager, Grandma buys a $50 Best Buy gift card. The man who tinkers in the garage – Home Depot. Busy mom – WilliamsSonoma. And so on. The Backstory The gift card industry, predicted to total $35 billion this season, has arisen out of nowhere. A skeptic might say it’s the greatest scam on American consumers since bottled water; a way to get consumers to pay for something they could get free. Who would have thought that in 2007, the most popular Christmas gift is not a toy, but a piece of plastic that might represent a toy. It’s hard to explain the idea that people would trade perfectly good cash – universally accepted for goods and services -- for a piece of plastic that can be spent in only one place. Statistics show that many are forgotten or misplaced. Retailers are left with the happy dilemma of accounting for the extra revenue. On the other hand, gift cards solve a dilemma for millions of people who simply can’t decide on a gift or want to skip the shopping experience – while getting credit for a thoughtful gift. Hidden Proﬁt If every gift card sold by a retailer were redeemed, it would still be a great retailer program, because most folks spend more than is on the card, and it brings another buyer into the store. But the truth is that gift cards are often never redeemed. The Tower Group estimated that $8 billion was lost by consumers last year on cards that expired or were never redeemed. That can be a big boost to retailers. Imagine making sales and never having to supply the merchandise. In its 2006 ﬁscal report, Best Buy reported a $43 million gain from gift cards unlikely to one, will pay you cash for your unwanted gift cards. It also sells those cards – you can get a $50 card for the Gap for $45, for example. The site claims to be the ﬁrst to guarantee the validity of cards it sells, and has taken steps to guard against fraud. There are plenty of trading sites like it, such as CardAvenue.com and Swapagift.com. value in exchange for cash. There’s even a market for collectors. eBay has an extensive listing of cards never activated, with no value, for folks who collect them. Government Help Much of the criticism of the gift card industry is directed at card providers who charge fees, have expiration dates or whose cards lose value over time. A Bankrate.com gift card survey showed that most retailers don’t carry fees or expiration dates, while cards sold by credit card issuers (American Express, Discover, Visa and MasterCard) do. These are known as open-loop cards and can be used anywhere that credit cards are accepted. Some lose their value over time as well. Many states have enacted laws to protect consumers when it comes to gift cards. Nine states prohibit expiration dates, and 20 others require minimum periods before cards expire. In November, the Michigan House passed new legislation limiting the fees and expiration dates on gift cards. Gift cards have become as much a part of the Christmas season as carols and candy, and retailers will continue to market them to customers. Whether they redeem them or not remains to be seen. Rick Redding is a freelance writer in Louisville, KY. He writes about media and politics in his hometown at http://thevillevoice.com. He can be reached at rick@thevillevoice.com. Public Awareness Gift cards are starting to get some public criticism, especially as the media has begun reporting the massive dollar amounts of gift cards that don’t get redeemed. Check the warning signs in established media – articles have been appearing in Consumer Reports and other magazines, even daily newspapers, warning consumers to be careful with gift card purchases. What’s amazing is how easy it would be for the waste in gift cards to be eliminated – if the folks who give and receive cards would just use them. Most are spent within 30 days of receipt, giving retailers hope for January sales, but the consumer is still likely to lose value in the whole gift card exchange game. Dilbert, the comic strip character known for his love of technology, says of gift cards: “It shows defective thought. You’re trading perfectly good money for something that does the same thing, only not as well.” Of course, there’s no expiration date or fees for using cash. It’s not a “use it or lose it” proposition. Gift Cards Answer Dilemma The idea of supplying a substitute for cash goes back to early American history, when private companies issued “scrip” as wages in small towns. The company scrip was good only in the company town. Various forms of scrip have been around for years. Retailers used the concept to issue gift certiﬁcates in the modern era, often in the form of a paper document, which could be used like cash in a particular store. In the last decade, as advances in technology made gift card programs practical, the gift card industry began a meteoric climb. National Retail Federation statistics show that gains were modest -- 0.6 percent (2004) and 6.4 percent (2005) – until jumping 55 percent to $28 billion in 2006. A study by Archstone Consulting predicts a 25 percent surge this year to $35 billion. And if there are more cards on the market, more consumer dollars could be lost, whether that value is residing in wallets, purses or behind the couch. Retailers are behind the push to create gift card sales – making them available in more be used. Consumers Union, which publishes Consumer Reports, has mounted a public-awareness campaign, including a full-page ad in the New York Times, warning buyers about “the latest holiday pitfall to avoid.” Last year, the group’s campaign urged consumers to skip extended warranties. This year it is advising against gift card purchases. “It’s easy to understand the appeal of gift cards,” said the magazine’s senior editor, Tod Marks, in a news release. “But gift-givers and recipients alike need to be aware of the pitfalls and make sure that precautions are taken so that the recipient gets the gift card and not the retailers.” A Consumer Reports survey shows that 62 percent of consumers will buy a gift card this season. Of those who received one in 2006, one in four have not used one or more of the gifts. Consumers told the magazine they didn’t have time, couldn’t ﬁnd anything they wanted, forgot about them or lost them. That’s the source of a growing argument against the cards. If it were a $20 bill, folks certainly wouldn’t use any of the above reasons as to why they didn’t use the gift. No one leaves a $20 bill at Grandma’s house. The secondary market for gift cards may be strongest at the auction site eBay, where you can buy cards for slightly less than their value. There are thousands of cards for sale on eBay. Plenty of consumers are willing to save a few dollars this way, and plenty of the folks who get gift cards are willing to give up a few dollars of Getting the Most for Your Gift Card 1. Buy Gift Cards from Retailers: Giving a bank card with an assigned value has the advantage of being able to use it in more places. But there are fees associated with these cards. And choosing a store that you think the recipient would like shows you gave the gift some thought. 2. Choose Appropriate Amounts: No one wants a $25 gift card for a furniture store where the cheapest lamp is $100. If you think a teenager will buy a video game, make sure the gift card is enough to cover the item. 3. Give the Receipt: Just in case your recipient can’t ﬁnd something at the store, provide the receipt (they know what you spent anyway) to make a potential exchange easier. 4. Spend It Now. There’s no better time than the day after Christmas to go out and spend those gift cards. Or the next day. Go shopping. 5. Coming Up Short: If you’ve got $25 to spend, don’t go to the cash register with $20 in merchandise. 6. Read the Fine Print: Don’t expect to do anything with your card other than spend the value on the card. Know if the card has any fees or an expiration date. Cashing In The popularity of gift cards has spawned another unforeseen sub-industry – gift card exchanges. The popular Web sites offer you a percentage of the value of any gift card you own – for a cut. These services are thriving. Plastic Jungle, for http://CardAvenue.com http://Swapagift.com http://Bankrate.com http://thevillevoice.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - December 15, 2007

The Prepaid Press - December 15, 2007 GENERAL PREPAID 2007: Prepaid in Review New Prepaid Association? Contents A Funny Thing Happened on the Way to the Forum Regulatory Rundown: FCC Enforcement, SEC Cracks Down, VoIP Hacking, & Wireless Regulation The Legal Line WIRELESS Prepaid Wireless Roundup kajeet to Offer Horoscopes, Jokes and Trivia Redknee Extends Converged Billing Solution AT&T GoPhone Offers Roaming Option in Mexico Total Call Mobile Introduces Holiday Bonus Wireless in Brief INTERNATIONAL Spot Rates Keycorp to Distribute Hypercom in Canada International in Brief Mobile Communications in Latin America Gets a Leg Up TELECOM & TECHNOLOGY T&T in Brief Phone House Launches New Card Facebook Goes Mobile CVT and Total Call Settle IDT Lawsuit Wireline Capex Grows 7% in Third Quarter PAYMENTS Transcard Selected for Discover Payroll Cards Vesdia and MXT Card Services Form Alliance The Giving Tree Card Gives Back MasterCard Launches Prepaid Travel Card Payments in Brief 7-Eleven Pushes Video Games Capital One and NetSpend Merger Off i2c Launches New Release of Campaign Manager Prepaid Card Dispensing from ATMs Credit Card Design Competition Begins NRF Says Gift Cards Gaining Popularity EXTRAS Classifieds Contact Us Our Advertisers

The Prepaid Press - December 15, 2007

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