Gift Cards 101
On 19 April 2019, Pinelabs, the leading merchant platform company in India as well as the most recent company to earn the title of ‘unicorn’, acquired the leading Gift Card solutions company of India, Qwikcilver. The Bangalore-based start-up was acquired for $110 million which makes the transaction one of the recent instances where a cash exit of an Indian start-up has been successful. Such investments in the Gift Card industry have been popular throughout the global market and not just in the Indian subcontinent. For instance, the global Gift Cards market size was valued at $619.25 billion in 2019 and is projected to reach $2,076.51 billion by 2027, growing at a CAGR of 16.2% from 2020 to 2027. Now, while the statistics paint the picture of a booming industry, when one comes across Gift Cards, a common question often lingers in their minds: How do Gift Cards really work?
What Are Gift Cards?
A Gift Card is a preloaded card that can be used by the person it is gifted to, to purchase whatever they wish to. They are broadly categorized into two categories: open-loop and closed-loop Gift Cards. Open-loop cards are cards that can be redeemed almost anywhere where the brand of the card is accepted. However, the more popular alternatives are the closed-loop Gift Cards. Let us take a closer look at this category.
Closed-Loop Gift Cards
Closed-loop Gift Cards are cards that can only be redeemed at the retailer or merchant mentioned on the card. Examples include Amazon Gift Card, Walmart Gift Card, etc. Over the years, the popularity of these closed-loop Gift Cards has increased dramatically.
For instance, just in 2018, the US spent more than $24 billion on B2B closed-loop cards. This trend of increased Gift Card consumption can also be traced by the fact that every day more and more retailers are issuing their own Gift Cards. The list of these retailers now includes several MNCs and corporate powerhouses such as Amazon, Walmart, Nike, Apple, McDonald’s, etc.
How Do Gift Cards Work?
Closed-loop Gift Cards function just like regular debit cards. Gift Cards are usually preloaded initially with amounts ranging from Rs.100 to Rs 10,000 (in India). When the Gift Card is used to purchase a product, the amount spent is effectively deducted from the total amount of the Gift Card. Initially, when Gift Cards entered the market, there was one serious problem with them: they could only be redeemed once i.e., they couldn’t be recharged with money once the entire sum or a part of it was spent. This effectively made it a one-time use product and also created problems for purchasing products higher than the Gift Card value. However, this problem was soon solved by Gift Card processors around the world by making these B2B and B2C financial instruments rechargeable. This meant that money could be loaded into them how many ever times the customer wanted to as long as it was done before an expiration date. After this date, the Gift Card could no longer be put to use. Gift Cards come with a generated pin, which when entered deducted the required amount from the card.
Growth Amidst 2020
With the pandemic at full effect during the course of the entire year, consumers around the world were looking to digitize every possible day-to-day routine. Of course, this included gifting too. With the advent of digital Gift Cards, gifters no longer had to be physically present to carry out the process of gifting. Hence, this was the most suitable way of gifting during 2020 and the numbers do add to this point too. For instance, despite 2020 facing a significant reduction in spending by consumers throughout the global market, Gift Cards managed to sustain the least fall in sales and demand in the last year. Digital Gift Cards also saw an increase in purchases by 61% just in the first half of 2020.
In conclusion, the recent success and growth of the Gift Card industry is evident from the different statistical figures suggesting the increase in its demand. In addition to this more and more companies around the world are investing in this financial instrument. Despite its early shortcomings such as the inability to reload money into them, Gift Cards around the world have been updated to meet the requirements of the everyday consumer. In fact, issuers of Gift Cards have also started getting creative with the gifting experience. For instance, Gift Cards can now be sent with voice recordings, text messages, and also with different custom themes. During the COVID19 pandemic, Gift Cards remained one of the least hit industries due to their large-scale digital counterparts rendering them the primary choice for gifting during this contactless age. Hence, it is safe to say that we’ll be hearing and seeing more of these instruments in the coming years too.
Hunter, By Shelley. “What Are OpenLoop Versus Closed Loop Gift Cards?: GCG.” GiftCards.com, 28 Apr. 2017. https://www.giftcards.com/gcgf/open-loop-versus-closed-loop-gift-cards
Moeser, Michael. “6 Ways COVID-19 Has Changed Gift Card Use.” PaymentsSource, PaymentsSource, 29 Oct. 2020. https://www.paymentssource.com/list/6-ways-covid-19-has-changed-gift-card-use
Bureau, Our. “Pine Labs Completes Qwikcilver Acquisition for $110 Million.” @Businessline, The Hindu BusinessLine, 19 Apr. 2019. https://www.thehindubusinessline.com/info-tech/pine-labs-acquires-gift-solution-firm-qwikcilver-for-110-mn/article26888452.ece
Picture Credits: @vectorjuice, Freepik (Cover Image)