Three out of four U.S. consumers have purchased a gift card in the past year, according to Blackhawk Network (BHN) data. Yes, gift cards have always been popular, but the market continues to grow. As an industry leader, BHN always wants to know why, how and what it all means for their partners.
That's why, for the sixth straight year, BHN partnered with NAPCO Research to conduct a comprehensive benchmark study to assess merchant gift card programs. The 2023 Merchant Gift Card Omnicommerce Evaluation looked at more than 100 U.S. merchants, evaluating 175 criteria covering in-store, online and mobile gift card offerings, including the consumer purchase and recipient experience. Also this year, they included an abbreviated assessment of 25 digitally ascendant brands.
During a PaymentsJournal podcast, BHN Sr. Global Market Research Manager Sarah Kositzke, BHN Vice President of Sales Andrew Solomon and Javelin Strategy & Research Head of Prepaid Jordan Hirschfield discussed some of the ways businesses can build—or evolve—their gift card programs.
Gift cards get better for consumers and businesses
The BHN/NAPCO evaluation assessed gift card programs across various platforms, including physical stores, websites and mobile apps. Among many other criteria, they looked at each program’s accessibility, options and recipient experience, revealing important insights for merchants seeking to optimize their gift card programs.
Merchants have reason to optimize. By 2026, the U.S. gift card market is projected to reach $260 billion. The digital gift card market is growing, as well, and is expected to reach nearly $135 billion by that same year.
“Digital gift cards continue to be the most requested gift for 16 consecutive years,” Solomon said.1 Although the rising popularity of digital gift cards makes sense in our post-pandemic world, a significant portion of gift card purchases still occur in-store at brick-and-mortar retailers, including grocery stores, convenience stores and pharmacies.
Not only do consumers want their gift cards faster, but they also want them to come with more flexibility. There’s a definite shift towards options like Mastercard® or Visa® prepaid cards, as well as multi-brand gift cards good for up to 5–7 merchants on each card. Today’s consumers want choice.
“BHN’s findings align with our research and reveal similar patterns,” Hirschfield said. “Third-party retailers, including big-box stores, supermarkets and online retailers, continue to be popular destinations for purchasing gift cards, whether for personal use or as gifts for others.”
Gift cards have also become a great vehicle for introducing consumers to new brands and stores. “During the holidays, we discovered that almost a quarter of gift card recipients received a gift card to a new place they hadn't tried before,” Kositzke said. Consumers get to explore new brands and retailers and retailers get to attract new customers.
Gift cards have always been a great way to build loyalty programs; the new research shows that this trend is not slowing down at all. Across most of the industries evaluated in the BHN/NAPCO study, loyalty programs are continuing to increase spending and encourage the self-use of gift cards.
“This year’s NAPCO report found that around four in 10 people tend to use gift cards for themselves, similar to what we have observed,” Hirschfield said. “Loyalty programs provide ongoing benefits and create a lasting relationship with customers, rather than being a one-time use experience.”
How to build a strong gift card program
Whether you want to start or improve a gift card program, the BHN/NAPCO study reveals a clear path paved with best practices. Where should you place your gift card fixtures in stores, for example? Since many consumers pair a gift card with another item, you need to consider consumer behavior. “Strategically placing the gift card displays near related items can make it convenient for customers,” Kositzke said. “For example, place them near the greeting card section and near chocolates and flowers, which are commonly paired with gift cards.”
Tips like these not only increase gift card sales, but they also increase store sales overall. You’ll sell more greeting cards, more chocolates and more flowers.
Solomon added it’s also important to consider the size and appearance of the fixtures. “Can you make them more eye-catching with colors and lighting? Consider using special displays or holiday-themed shippers at checkout. Pay attention to the marketing and theme around the gift cards and make the carrier (the packaging) feel special and different for holidays,” he said.
“On the digital side, focus on creating a great mobile experience,” he added. “Innovations like unwrapping the gift card in a mobile setting can enhance the user experience. We actually had to add in rewrapping the digital gift card because people like unwrapping and rewrapping it so much.”
Let’s take one more look at loyalty programs, which play such a major role in today's retail economy. Retailers can use gift cards to attract customer loyalty by offering incentives like earning points with a gift card purchase. This helps encourage customers to choose a certain retailer while providing additional benefits and value. Consumers love getting bonuses of any kind, whether points, fuel discounts or other types of rewards.
“Mobile apps are a key driver in enhancing loyalty programs,” Hirschfield said. “They allow customers to easily link physical gift card purchases and load their balances digitally, creating a seamless experience. By offering instant rewards and bonuses, such as a $5 digital gift card, customers feel valued and motivated to try new products or indulge in extras.”
Digital is growing
According to the BHN/NAPCO research, digital gift cards now make up roughly 40% of all gift card sales, signaling a definite, although not very surprising, bump in popularity.
“Currently, the average value of digital cards is slightly lower, around $30, compared to physical cards,” Hirschfield said. “However, what's interesting is that people are using digital cards just as much, if not more, than physical cards. When it comes to unused balances, the median remaining balance for physical cards is about $1, which can be difficult to use. But for digital cards, the median remaining balance is zero, meaning people are able to use the full value of their digital cards.”
According to Solomon, a successful digital gift card program should focus on a few key aspects:
- Invest in fraud protection. You need a risk management system that can separate a fraudulent transaction from a legitimate transaction. False declines lead to unhappy customers and a bad reputation.
- Sell first-party gift cards (your brand) in your stores, on your own website and through social media.
- Give today’s consumers the payment options they want, like Venmo, crypto and Buy Now Pay Later.
- Do what you can to improve your gift card customer’s experience—in stores, have attractive and properly merchandised displays; online and on mobile, use animated cards or other interactive elements. And always make ordering and redeeming as easy as possible.
- Use notifications to remind customers about their purchases or deliveries. They don’t want to forget about their gift cards, and you want them to come back where they will typically spend more than the gift card’s face value.
“Digital channels also allow for higher initial gift loads compared to physical cards. Moreover, digital options are beneficial for those who can't travel during the holiday season,” Kositzke said. “It ensures that gifts can be delivered safely and easily, making it a great alternative for sending presents to others.”
Being popular brings opportunity
With such significant growth, the gift card industry brings valuable opportunities for merchants to increase sales, revenue and their customer base. The BHN/NAPCO research outlines the importance of improving the experience for both gift card buyers and gift card recipients, offering the kind of payment options today’s consumers demand and leveraging digital platforms to meet their evolving needs.
The research also shows how digital gift cards are a convenient, effective solution for incentives programs, especially for businesses with a mix of in-house, remote and hybrid workforce. In addition, these digital channels can help merchants grow their customer base and provide a seamless gift-giving experience.
Whether you’re looking to start or optimize a gift card program, The 2023 Merchant Gift Card Omnicommerce Evaluation from BHN and NAPCO Research provides a host of invaluable information and insights—more than enough to turn the current gift card industry opportunity into a gift card industry success story.
*NRF and Prosper Insights & Analytics 2022 Consumer Holiday Survey