Gift cards emerge as payment instrument; open loop gift cards expected to gain market share

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Globally, the adoption of gift cards has seen a steady increase over the years. Consumers have been using gift cards for various transactional purposes such as exchanging it for cash, buying cryptocurrencies, and using it for regifting. At a fundamental level there are four key drivers, which are supporting gift cards transition to a payment instrument:

• Increased use of gift cards for self-gifting, supported by discounts offered by retailers
• During the present market scenario created by the pandemic, demand for gift cards is rising, primarily among the unbanked and underbanked population.
• Moreover, customers are becoming more cautious about their spending due to the economic slowdown - as an effect of the COVID-19. Consequently, gift cards are also offering a way to manage financial spending. Traditionally, general-purpose prepaid cards have occupied this space, but the ease of procurement is helping gift card gain share.

The popularity of gift cards as payment instruments is rising as it allows the cardholder to make a purchase of their choice and be prudent about the spending. It is expected that the rising demand for open-loop gift cards will drive market growth over the period.

Gift cards are categorized in two ways: closed-loop and open-loop. A closed-loop gift card is affiliated to a brand/retailer and can be used only in that network; however, an open-loop gift card is offered in partnership with a network such as Visa or MasterCard. According to PayNXT360’s Q2 2020 survey, consumers are finding open-loop gift cards more user-friendly, especially in the current market scenario, as they get a much broader choice to spend the value of the card.

To know more and gain a deeper understanding of gift cards globally, click here.