Report: Digital Is the Future of Gift Cards, But Fraud will Continue

Report: Digital Is the Future of Gift Cards, But Fraud will Continue

January 30, 2020

Digital gift cards are predicted to grow and will eventually surpass physical gift cards as the choice for buyers, according to new research from Mercator Advisory Group, titled Digital Gift Cards: U.S. Market, 2019.

Americans loaded $95 billion onto gift cards last year and the digital gift card market is growing at a pace that is faster than traditional, physical cards. The report notes that digital gift cards are purchased most frequently by consumers with an annual income of $75,000 or more. Microgift cards are also growing. Microgift cards are provided digitally via a token for small amounts usually under $20, with $5–10 as the most common amount given.

The report’s author recommended retailers seize the opportunity for growth in the gift card market by offering multiple options for card delivery and use.

“Retailers should be using an omnichannel approach to growing their gift card programs. That means offering gift cards through store locations, offering online ordering with physical card delivery, online/app/mobile app ordering with a digital delivery. Consider offering or adding a loyalty program to your gift card program to encourage repeat purchases,” stated C. Sue Brown, Director of Mercator Advisory Group's Prepaid Advisory Service.

Higher Fraud Rates in the Digital Realm

While becoming more popular with consumers, digital gift cards are also a hot target for fraudsters. While fraud is prevalent for both physical and digital gift cards, it is higher for digital gift cards, according to the report. Digital gift card fraud is a $950 million annual loss to the industry annually and represents between 1 percent and 4 percent of revenue.

For a detailed explanation of gift card fraud and strategies to deal with it, check out this free white paper on the topic.

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Joan Goodchild

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