The gift card market is growing in the United States, but unused gift cards are a major problem for the sector

The gift card market is growing in the United States, but unused gift cards are a major problem for the sector

The gift card market is growing in the United States, but unused gift cards are a major problem for the sector

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The popularity of gift cards in the United States has been increasing consistently over the last five years. Going forward, digital gift cards are expected to emerge as a more popular option, compared to physical gift cards. This is also evident in the number of new digital gift card product launches in the United States.

EML Payments, for instance, launched a digital gift card offering for shoppers in the United States. Zuza, an omnichannel software and super app provider, also launched a digital gift card program termed Prolific eGift. Blackhawk Network, one of the leading players in the gift card industry, also expanded its partnership with Recharge to bring the digital gift card offering to the United States market.

These product launches are a clear indication that more and more consumers prefer digital gift cards over physical ones in the North American market. PayNXT360, therefore, expects the digital gift card segment to lead the growth of the overall gift card market over the next five years in the United States.

  • According to a report from PayNXT360, the United States gift card market is expected to grow at a compound annual growth rate (CAGR) of 5.7% from 2023 to 2027. Based on the estimates, the industry will increase from US$185.4 billion in 2022 to US$247.9 billion by 2027.

The projections indicate that the market is poised for significant growth over the next five years and that there is plenty of headroom for growth for both domestic and international players in the segment. However, one of the major issue that is plaguing the industry growth is the amount of gift cards that are left unused every year in the United States.

According to PayNXT360 estimates, nearly 43% of all adults in the United States have at least one unused gift card, voucher, or store credit. The report also revealed that the average value of gift card money available to adults is US$78.

However, with inflation rising and consumers struggling to make ends meet, utilizing the unused gift cards is expected to grow from the short to medium-term perspective in the United States. The trend is especially higher among young Americans who are turning to gift cards and store credits amid uncertain economic environments. This, in turn, will support the revenue growth for small retailers and merchants, who have been also reeling under the impact of macroeconomic factors.

Over the years, the unused gift cards have largely benefited large-scale retailers, like Starbucks. During the fiscal year 2021, Starbucks recorded approximately US$181 million in revenue attributed to gift cards and loyalty accounts. This amount represented approximately 1% of the company's total sales and accounted for around 4.3% of its net income for that specific period. For Starbucks, the unused amount has been increasing every year. In fiscal 2020, unused gift cards amounted to US$145 million. This is a clear indication that Starbucks has enjoyed healthy revenue growth through unused or unspent gift cards.

However, forty-three states have now unclaimed property laws, which also cover gift cards. As a result, after the dormancy period, unspent dollars in the form of gift cards go back to the state. New York, in 2022, received US$48 million of such funds, which also happens to be a one-year record.

  • Nearly, half of the unused gift cards that were received in New York belonged to two businesses, H&M and Apple. As part of the settlement, H&M returned about US$18 million to the state, whereas Apple gave back US$3 million in unspent balances.

The law regarding gift card balances was again changed in December 2022, wherein the recipient in the state of New York now has nine years to spend the value on their gift cards. Previously, this was set to five years. However, the law made no changes to the Abandoned Property Law, which states that the unused gift card fund must go to the state after five years of inactivity, even if it has not expired.

To know more and gain a deeper understanding of the global gift card market, click here.

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