NEEDHAM, Mass. - TowerGroup says it expects gift cards to be a major hit this holiday season, with combined gift card sales in the United States expected to exceed $80 billion, up more than 20 percent from 2005.
Segments to benefit from prepaid sales include:
- Retail: $29 billion
- Restaurant/fast food: $18 billion
- Miscellaneous (gas, services, etc.): $12 billion
- Universally accepted (i.e., bank-issued): $23 billion
Despite gift-card popularity, the space continues to be a source of controversy where fee-structures and redemption–rules are concerned. While retailers do not generate revenue until a card is used or declared dormant, they do receive a "free float" on unused cards. One large retailer recently showed a $42 million income benefit for unused gift cards more than two years old.
TowerGroup analysts say the unused value on these cards, often referred to as "breakage," has a bigger impact on consumers than the combined total of debit- and credit-card fraud, estimated at $3.5 billion annually in the U.S. TowerGroup estimates that nearly $8 billion is lost to unredeemed gift-card value, expiration or loss.
