Governments are issuing gift cards to lift short-term consumption and restore consumer confidence amid rising inflation and the cost of living

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The rising cost of living has had a severe impact on consumer confidence and spending in H1 2022. Globally, consumers continue to face a difficult year in the wake of rising inflation. On the other hand, retailers continue to experience higher costs due to surging commodity prices, labor shortages, transport costs, delays at ports, and the ongoing war in Ukraine. While retailers are expected to continue their efforts to mitigate the effect of these cost rises, consumers too are projected to face more headwinds going forward.

In the wake of these testing times for consumers and retailers globally, governments have resorted to gift cards to lift short-term consumption and restore consumer confidence, a trend that has been seen around the world. In the United Kingdom, where retail sales declined in April 2022 as shoppers tightened their spending in response to the surging cost of living, the government started handing out gift cards to households to cope with rising inflation. For instance,

• In March 2022, the Glasgow City Council announced that it is planning to disburse £9 million in gift cards to over 80,000 households. These gift cards, each worth £110, are part of the strategy to help low-income households cope with the surging cost of living crisis.
• At the same time, the City Council aims to inject multi-million pounds into the local economy by making these gift cards redeemable with businesses that are registered with the city. Under the program, over 700 businesses – including shops, restaurants, salons, and visitor attractions – have signed up to accept gift cards.

The much-needed economic stimulus program is an extension of Scotland Loves Local Campaign, a similar gift card program, which allowed locals to support businesses to recover from the global pandemic outbreak. Notably, more councils in Scotland are adopting similar gift card programs to boost consumer spending. For instance,

• In August 2022, East Renfrewshire announced a similar gift card program to boost consumer spending and confidence. Under the program, gift cards worth £105 is set to be given to more than 4,500 households in East Renfrewshire.

These trends are not just visible in the United Kingdom. Governments around the world are turning gift cards to boost consumption and drive economic growth. For instance,

• To boost consumer consumption and encourage local spending in Q2 2022, Shenzhen, a Chinese city in South China's Guangdong Province, announced that it would issue coupons worth US$75.55 million or 500 million yuan.
• Similarly, Ningbo, in East China Zhejiang Province, announced that it plans to issue vouchers worth over 300 million yuan, which will allow consumers to spend at over 100,000 merchants across auto, catering, entertainment, tourism, and home appliances.
• In East China Fujian Province, Fuzhou is giving out vouchers worth 120 million yuan for tourism and spending. Additionally, the city has also planned to organize over 200 promotional activities for offering discounts worth over 370 million yuan.

All of these programs are part of the strategy to lift short-term consumption, drive local spending, and alleviate pressure on merchants. PayNXT360 expects the issuing of these consumption vouchers in China to give a boost to the catering and retail industry, as coupons for the purchase of daily products will be welcomed by the locals suffering from the impact of Covid-19.

In the United States, similar trends are visible, with some cities announcing digital gift card programs to encourage consumer spending at local businesses. For instance,

• In June 2022, Pinole, a city in California, announced the launch of a digital gift card program that is aimed at supporting local businesses at times when consumer spending is declining in the wake of rising inflation. Under the program, the city is offering an additional 50% in money when consumers make a purchase of a digital gift card. Notably, over 20 merchants have signed up to participate in the digital gift card program.
• In May 2022, Portland, a city in Oregon, announced that it is distributing US$500,000 in gift cards as part of its strategy to support downtown businesses. For launching this gift card program, the city forged a strategic alliance with Portland-based Kuto, a payment processing startup. Notably, the city aims to distribute a total of 10,000 gift cards, each worth US$50.

Apart from boosting consumer confidence and spending, governments are also using gift cards to boost the vaccination rate. In the United States, many local governments have launched such gift card programs in 2022. For instance,

• In February 2022, the Philadelphia Health Department announced that it is handing out gift cards worth US$100 for getting Covid-19 vaccination. Similarly, New York City also announced a US$100 gift card incentive program to encourage vaccination among locals in February 2022.

Such government disbursement programs through gift cards propelled the growth of the market in 2021 when governments around the world were offering gift cards to combat the impact of Covid-19 and boost vaccination, and now the trends are continuing in 2022 when the governments are offering gift cards to combat the effects of inflation and cost of living. With these trends expected to continue further in H2 2022, PayNXT360 maintains a positive growth outlook for the global gift card industry from the short to medium-term perspective. 

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