Digital and Physical Equilibrium

Since the consumer sentiment survey was revamped three years ago, Hirschfield has noticed several trends in the prepaid industry. One notable trend is the ongoing prominence of digital gift cards.

While some have assumed that digital gift cards would eventually dominate physical ones, this might not be accurate for prepaid products. It’s interesting with digital and physical—it’s never going to be a flip to digital; it’s going to be an equilibrium,” Hirschfield said. Over three years, the data has shown stability in both physical card and digital card volumes.

Retail gift cards continue to favor physical ones, as about 3 to 3.5 physical cards are sold per person each year compared with roughly 1.5 digital gift cards. Though these figures have been steady, there is a significant increase in load volume on digital gift cards. Additionally, many people don’t report Starbucks or Target reloads as prepaid purchases because they consider them more personal use than gifts.

As these trends become clearer and more funds flow into digital gift cards, the likelihood of an even split between physical and digital cards increases. That’s how you’re getting to that equilibrium perspective, and that’s where I’m advising people—this is not an either-or scenario; it’s a combined effort, and you need to be focused on both,” Hirschfield said.

Self-Use vs. Gift Use

Beyond the digital and physical divide, there is also a growing split between those who buy prepaid products as gifts versus for self-use.

Some popular segments where consumers buy gift cards for others haven’t seen significant growth over recent years, including food service companies, mass merchandisers, and apparel shops. While these industries remain strong, rapid growth isn’t expected.

However, several sectors have experienced growth in the gifting segment. We saw a lot of growth in travel and entertainment: hotels, casinos, resorts, theme parks, and airlines,” Hirschfield said. This indicates that such gifts are great when there’s no physical alternative.”

For self-use purchases, substantial growth has been seen in fast-food or quick-service restaurants (QSR) categories. Interestingly, coffee segments haven’t experienced the same level of growth likely due to established prepaid programs by larger chains.

Growth also exists for self-care providers, drugstores, and sporting-goods stores. Another emerging segment is online gaming and gambling.

Online gaming such as Xbox definitely grows; it’s a significant self-use category,” Hirschfield said.

Buying vs. Receiving

Hirschfield explored the differences between what consumers want to receive versus give in gifts, revealing quite different preferences on both sides of the equation.

Consumers want cash and gift cards as primary choices, with general-purpose gift cards leading the pack—Visa, Mastercard, American Express, or Discover. These are popular because they can be used anywhere. Cash comes second, being accessible almost everywhere too.

However, from the giver’s perspective, there is a shift. While recipients favor general-purpose gift cards and cash, gift givers prefer retailer-specific cards due to perceived personalization. Gift buyers still want actual gifts over just giving money, as it provides an experience that cash doesn’t offer.

A Positive Secondary Gift Carding Experience

This preference for giving physical gifts is leading to a new paradigm in prepaid. The physical gift is interesting for the prepaid industry because often it turns into a return, and a return can turn into store credit—especially when it’s been given as a gift,” Hirschfield said.

As more stores loosen their return policies, there will continue to be opportunities for merchants to leverage this process by making secondary gift card experiences positive. Especially in retail gift cards, it’s having that opportunity to say how do we make this physical item a positive secondary gift carding experience?”