by Donna M. Airoldi | July 07, 2010

A recent report from San Francisco–based Javelin Strategy & Research reports that U.S. consumer usage of prepaid and gift cards dropped from 66 percent in 2008 to 61 percent in 2009, however the decline began to turn around by the end of 2009 and card sales will regain momentum in 2010 along with prepaid products.

The 2010 Prepaid and Gift Card Market Report also found that companies that focus on the right features, messages and market trends can compel consumers to buy more stored value and gift cards. “While overall use dropped in 2009, in the online channel pay-before products such as prepaid and gift cards are flourishing.” said Mary Monahan, managing partner and research director for Javelin.

Javelin forecasts that prepaid usage will more than double by 2014 and gift cards to more than triple, with the latter expected to attain $6 million five years into the future.

The survey also shows that regulatory issues and industry maturation are driving greater product innovation, consistency and consolidation of players in the market. The market need for one-stop shop, end-to-end providers may result in increased vertical integration versus the multiple niche players in the market today.

Key Report Findings

  • Consumer use of prepaid and gift cards dropped in 2009, but usage is bouncing back in 2010 as regulation reduces fees and consumers have less accessibility to credit.
  • Overall, 56 percent of consumers used a gift card in the past year; less than half that many used a prepaid card.
  • The demographic of consumers receptive to prepaid and gift cards is evolving as merchants and service providers offer innovative products such as payroll and travel, new access methods such as Internet and mobile devices, and options such as micropayments and teen spending controls.
  • Industry consolidation of the fragmented prepaid and gift card market is likely to accelerate throughout 2010, elevating the importance of this market for merger and acquisition specialists. An increase in vertical integration may also occur, with consumers and businesses preferring one-stop shop, end-to-end providers to the many niche players participating in the market today.

The 2010 Prepaid and Gift Card Market Report is based on Javelin’s most recent annual payments survey of 3,294 consumers, vendor interviews and Javelin expert strategic analysis.