by Alex Palmer | May 22, 2018
Open-loop gift cards, such as those branded with Visa, MasterCard, or American Express, that can be used at numerous merchants, continue to do brisk business. According to Mercator Advisory Group, after seeing a growth of 8 percent in 2016, open-loop gift cards will continue to grow by 3 percent through 2020, increasing load totals to $22.3 billion. One of the major reasons Mercator cites for this growth is the increase in self-use of gift cards. More and more, people seek out gift cards not to give to friends and family for a special occasion, but to spend on themselves. 

To learn more about the growing self-use of gift cards, Incentive spoke with Matt Lanford, vice president of financial services at InComm, who oversees the organization's open-loop prepaid cards.

How much self-use are you seeing from gift card buyers? 

About 50 percent of consumers are buying open-loop prepaid cards -- Visa, MasterCard, American Express -- for themselves. As we look closer into the data, they're using it for more everyday purchases: Dining, grocery, utility payments, and things of that nature.

We looked at it two ways: one in a retail environment of who's buying the card and then who are they giving that card to. In an incentive space, recipients will behave slightly different, but from a usage perspective, the card usage will track pretty similarly. I'm looking at our Vanilla gift card recipients, about half of our recipients are female and about 30 percent of them bought the card for themselves. And the reason that we're seeing that is really that they're buying it as a treat or about 30 percent of them are saying that they're using it as a budgeting or a bank alternative. 

Can you explain what you mean by "bank alternative"?

So here's a card that's pre-denominated with $25, $50, or $100. The outside package says it's a gift and the insight card looks like a standard card and so they're just saying, "I want to load $25 on this card and then I'm only going to use this card for my lunches when I eat out every day" -- so it helps them keep themselves on a budget. It's almost a jam-jar effect: I have all these little jars and here's my lunch money and here's my going-out money and here's my clothes, shopping money, or whatever. 

For the general purpose population, we have a product called MyVanilla, which comes with a mobile app, and it's more of a banking alternative, making purchases online or managing their finances or budgeting transactions that we see being used more towards the everyday kind of thing -- groceries, gas, utility payments, bill payments, things of that nature. 

Are you seeing similar spending habits whether it's consumer or employee incentives?

It depends on the type of card they're given. We are seeing gift card popularity in employee incentive programs go up and looking across both the closed-loop version and open-loop cards, consumers are choosing more gift cards that are focused on electronics -- around 74 percent of them, according to the Incentive Research Foundation's Outlook Study and clothing apparel at around 70 percent. For open-loop gift cards such as our One Vanilla gift cards, around 68 percent of the employees are choosing an open-loop card and are saying, "I don't want to be restricted to where I use it. I can use this anywhere this card is accepted."

Do you think that self-use is growing? 

I think it's always been there to some extent. We have other products that are targeted for self-use -- a product that looks more like a general purpose reloadable card in its packaging, but it's single-load. I don't have to register myself and it doesn't have cash access. We're seeing that kind of skew into the general gift card category where we would expect it to be used for gift giving. Maybe it's because they liked the packaging or there was product confusion. 

What is the profile of those buying One Vanilla? Do they tend to be younger or older?

Lanford: We've found that 61 percent of the people purchasing One Vanilla are male. About 54 percent are between the ages of 18 and 24, so its skewing younger, and they're using it for online shopping followed by bill payments, and then everyday purchasing. So it's a slightly different target audience and that probably has something to do with the design of it and the way it's messaged. 

Anything else you think should be mentioned in general about this trend towards self-use and what that might mean more broadly?

This is really kind of at the crux of what prepaid is all about -- a flexible product that can be used for anything. There are three to four key points, reasons why people like open-loop and prepaid cards: One is the flexibility. Or because they don't want to expose their debit or credit card credentials on the Internet. You see others wanting to buy a prepaid card from a budgeting perspective and they use them more as that savings mechanism. And then from a financial inclusion perspective, prepaid cards give financially underserved consumer the ability to take cash converted into an electronic form and use that in an online or physical point-of-sale environment. Whether it's consumer-focused or corporate-focused, there's lots of opportunity in the space.