Two important metrics came in close to expectations. Now that US consumer spending is rebounding, we expected an increase in card loads. Similarly, spillage or unused value, has been improving since the CARD Act.
Our estimate on electronic/virtual gifting last year was that the sector would hit $3 billion during 2012 and it looks like we were too optimistic. This fledgling area has strong potential, but the US market is relatively slow to adopt mobile payments. Asian and European markets are far beyond the United States. Canada is launching several interesting options. Latin America is a prime market for prepaid mobile.
The US card market continues to deliver almost half of global transaction volume, but it remains reticent to leave the traditional plastic payment card. Similarly, near field communications (NFC) is still floundering. MasterCard and Visa are attempting to bundle their industry mandate for smart cards (EMV) to the NFC format to ensure the relevance of their brands.
At the same time, Apple launched its latest iPhone without an NFC link, suggesting the possibility of yet another (potentially competing) format in the near future. Gift cards will follow electronic adoption trends; they will not lead it. This payment form is a small part of the $4 trillion US transaction market, which is still unsettled between merchants and banks that bicker about interchange.
The second area of mention is about fraud and gift cards. Our recent Card Fraud Technology Analysis showed how best-in-class companies such as ACI, Actimize, FICO, and SAS provide strong defenses against credit and debit fraud. Prepaid cards and the gift card subset are the newest variations to the payment card and have the lowest level of protection. Ironically, consumers have the least protection with prepaid cards and the risk is often borne by the consumer, not the card issuer or merchant.
We plan to focus on this area in our next gift card review, but in the interim suggest you remember the product was never designed to be a savings tool. If you get one this holiday season, use it (…or re-gift it)!