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Pre-paid and Gift Cards - US - January 2012

The prepaid and gift card business is experiencing a comeback as the economy slowly recovers from the recent recession. Prepaid cards are among the fastest-growing method of payments, with the number of transactions increasing nearly 23% per year between 2006 and 2009 (source: 2010 Federal Reserve Payments Study).

Use of these cards has expanded beyond general reloadable cards (GPRs) and they are now used by corporations and government agencies to pay salaries and benefits, saving these organizations money and making it easier for people—especially the unbanked—to gain access to their money. Gift cards are benefiting from the improving economy, although the precariousness of the recovery is certainly having a dampening effect.

Demographics and technology are also positive factors for both sectors, as growth in un- and underbanked populations, historically heavy users of prepaid cards, is growing, and as mobile technology increases in presence and sophistication.

What you need to know:

  • In light of the struggling economy, what are the near term prospects for the prepaid and gift card industries?
  • How might legislation restricting interchange fees for debit card transactions help the prospects for prepaid card usage?
  • What are the sectors of the economy or types of corporations that will be the primary drivers of growth?
  • What do consumers think? Might their disenchantment with banks and the entire banking industry cause them to look for banking alternatives?
  • The un- and underbanked have been the mainstay of the prepaid card business, and that population has historically been made up largely of minorities and immigrants. What are the forecasts for these groups going forward?
  • Teens are also a lucrative market for prepaid cards. Will this continue or are tween and teen preferences changing?
  • How are companies using prepaid and gift cards as incentives and in loyalty programs?

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Table of contents

  1. Scope and Themes

      • What you need to know
        • Data sources
          • Consumer study data
            • Advertising creative
              • Abbreviations
                • Terms
                  • Companies mentioned in this report:
                  • Executive Summary

                    • Industry overview
                      • The economy is feeling a bit better
                        • The un- and underbanked are attractive—and growing—segments
                          • New legislation is challenging banks—and helping prepaid cards
                            • Payroll cards are more popular
                              • Egift cards are here
                                • Social networking sites are a new marketing channel
                                  • Teens are an important market
                                    • Opportunities and challenges – examples from Mintel’s data in this report
                                    • Insights and Opportunities

                                        • Key points
                                          • U.S. government and individual state agencies use prepaid cards to pay benefits
                                            • Payroll cards are set to grow
                                              • Prepaid cards offer opportunity to make up lost revenue
                                                • Banks are vulnerable to customer defections
                                                  • The un- and underbanked remain an attractive segment
                                                    • Mobile gift cards will grow as smartphone sales grow
                                                      • Prepaid and gift cards are increasing in popularity as incentives
                                                        • There is no single market of prepaid cardholders
                                                          • Figure 1: Satisfaction with prepaid debit card, November 2011
                                                      • Inspire Insights

                                                          • Inspire Trend: “Prepare for the Worst”
                                                            • Inspire Trend: “Totophobia”
                                                            • Market Size

                                                              • Key points
                                                                • Load volume and sales volume predicted to explode
                                                                  • Closed-loop cards not dead yet
                                                                    • Figure 2: Total dollars loaded onto closed-loop cards, 2003-10
                                                                  • 2011 sales of gift cards are predicted to improve
                                                                    • Volume breakdown of prepaid branded cards
                                                                      • Figure 3: Volume breakdown for branded prepaid cards, 2009
                                                                  • Competitive Context

                                                                    • Key points
                                                                      • Prepaid transactions are growing faster than any competing payment type
                                                                        • Figure 4: Consumer use of various payment types, 2006-09
                                                                      • More banks are likely to enter prepaid market
                                                                        • Credit unions are becoming more popular
                                                                        • Marketing Channels

                                                                          • Key points
                                                                            • The U.S. Post Office is getting in on prepaid cards
                                                                              • Social networking sites are flexing their selling muscles
                                                                              • Market Drivers

                                                                                • Key points
                                                                                  • New legislation is making offering prepaid cards more attractive to banks
                                                                                    • Increasing bank fees will spur interest in prepaid cards
                                                                                      • The economy may be loosening up
                                                                                        • Figure 5: National unemployment rate, by month, 2011
                                                                                      • Growth in the un- and underbanked segments
                                                                                        • Minorities could fuel growth
                                                                                            • Figure 6: Percentage of various minority group households that are unbanked, 2009
                                                                                            • Figure 7: U.S. population, by race and ethnicity, 2000-10
                                                                                            • Figure 8: U.S. population growth, by race, 2005 and 2050
                                                                                          • Larger low-income population
                                                                                            • Parents like prepaid cards for their teens
                                                                                              • Figure 9: U.S. population, by age, 2006, 2011 and 2016 (projected)
                                                                                              • Figure 10: Attitudes toward credit cards and debt, January 2006-December 2010
                                                                                            • The popularity of ecommerce will drive prepaid card use
                                                                                              • Figure 11: Estimated quarterly retail sales: total and ecommerce, Q3 2010 – Q3 2011
                                                                                          • Leading Companies

                                                                                            • Key points
                                                                                              • Figure 12: Prepaid and payroll cards, largest issuers by volume, 2009
                                                                                            • NetSpend is largest player in combined prepaid/payroll card volume
                                                                                              • Green Dot is the first prepaid card issuer to buy a bank
                                                                                                • American Express enters the prepaid fray
                                                                                                • Innovation and Innovators

                                                                                                  • Key points
                                                                                                    • Egift cards
                                                                                                      • Some auto insurers are allowing customers to pay via prepaid cards
                                                                                                        • Prepaid card specifically for Hispanics is introduced in Iowa
                                                                                                          • Investment companies begin using gift cards as incentives
                                                                                                            • Cash back rewards make prepaid cards more like credit and debit cards
                                                                                                              • An incentive to purchase gift cards
                                                                                                                • Community gift cards help strengthen local economies
                                                                                                                • Marketing Strategies

                                                                                                                  • Key points
                                                                                                                    • Print advertising
                                                                                                                      • H&R Block
                                                                                                                        • Figure 13: H&R Block MasterCard print ad, March 2011
                                                                                                                      • Bankers Trust
                                                                                                                        • Figure 14: Bankers Trust print ad, 2011
                                                                                                                      • TD Bank
                                                                                                                        • Figure 15: TD Bank print ad, 2011
                                                                                                                      • Direct mail advertising
                                                                                                                        • SmartyPig
                                                                                                                          • Figure 16: SmartyPig direct mail ad, 2011
                                                                                                                        • Urban Trust
                                                                                                                          • Figure 17: Urban Trust Bank Insight MasterCard direct mail ad, 2011
                                                                                                                        • Palm Desert National Bank
                                                                                                                          • Figure 18: Palm Desert National Bank direct mail ad, January 2011
                                                                                                                        • American Express
                                                                                                                          • Figure 19: American Express direct mail ad, March 2011
                                                                                                                        • Online and email advertising
                                                                                                                          • TD Ameritrade
                                                                                                                            • Figure 20: TD Ameritrade email ad, 2011
                                                                                                                            • Figure 21: TD Ameritrade email ad, 2011
                                                                                                                          • NetSpend Visa
                                                                                                                            • Figure 22: NetSpend email ad, 2011
                                                                                                                          • Green Dot
                                                                                                                            • Figure 23: Green Dot email ad, May 2011
                                                                                                                          • American Express
                                                                                                                            • Figure 24: American Express online ad, October 2011
                                                                                                                          • MasterCard
                                                                                                                            • Figure 25: MasterCard online ad, September 2011
                                                                                                                          • RushCard Visa
                                                                                                                            • Figure 26: Rushcard Visa online ad, October 2011
                                                                                                                        • The Consumer—Cards Purchased and Received

                                                                                                                          • Key points
                                                                                                                            • Number of gift/prepaid cards received in the last 12 months
                                                                                                                              • Figure 27: Number of gift/prepaid cards received in the last 12 months, by gender, September 2011
                                                                                                                            • Lifestage milestones a trigger for giftcard usage?
                                                                                                                              • Figure 28: Number of gift/prepaid cards received in the last 12 months, by age, September 2011
                                                                                                                            • What do you buy the person who has everything?
                                                                                                                              • Figure 29: Number of gift/prepaid cards received in the last 12 months, by household income, September 2011
                                                                                                                            • Greater use of prepaid and gift cards among couples
                                                                                                                              • Figure 30: Number of gift/prepaid cards received in the last 12 months, by marital/relationship status, September 2011
                                                                                                                            • Number of cards purchased
                                                                                                                              • Figure 31: Number of gift/prepaid cards purchased in the last 12 months, by gender, September 2011
                                                                                                                            • Scope to increase sales among grandparents
                                                                                                                                • Figure 32: Number of gift/prepaid cards purchased in the last 12 months, by age, September 2011
                                                                                                                              • High earners are the most likely to buy gift and prepaid cards
                                                                                                                                  • Figure 33: Number of gift/prepaid cards purchased in the last 12 months, by household income, September 2011
                                                                                                                                • Singles are the least likely to have bought cards in the last year
                                                                                                                                  • Figure 34: Number of gift/prepaid cards purchased in the last 12 months, by marital/relationship status, September 2011
                                                                                                                              • The Consumer—Where Cards are Purchased

                                                                                                                                • Key points
                                                                                                                                  • Where prepaid and/or gift cards are purchased
                                                                                                                                    • Figure 35: Where cards were purchased in past 12 months, September 2011
                                                                                                                                  • Higher earners buying cards online, and for luxury purchases
                                                                                                                                      • Figure 36: Location where gift/prepaid cards were purchased, by household income, September 2011
                                                                                                                                    • Volume sales driven by gifting
                                                                                                                                        • Figure 37: Number of gift/prepaid cards purchased or received in the last 12 months, by location where gift/prepaid cards were purchased, September 2011
                                                                                                                                        • Figure 38: Number of gift/prepaid cards purchased or received in last 12 months, by location, September 2011
                                                                                                                                    • The Consumer—Changing Purchase Patterns

                                                                                                                                      • Key points
                                                                                                                                        • Number of cards being purchased this year vs. last year
                                                                                                                                            • Figure 39: Purchasing more, less or same amount of gift/prepaid cards, by age, September 2011
                                                                                                                                          • Reasons for purchasing fewer this year
                                                                                                                                            • Figure 40: Why purchased fewer gift/prepaid cards in last year, by age, September 2011
                                                                                                                                          • The economic strain is showing among lower earners
                                                                                                                                              • Figure 41: Why purchased fewer gift/prepaid cards in last year, by household income, September 2011
                                                                                                                                          • The Consumer—Reasons for Buying Prepaid and Gift Cards

                                                                                                                                            • Key points
                                                                                                                                              • Occasion for which prepaid and/or gift cards were purchased
                                                                                                                                                • Figure 42: Why gift/prepaid cards are purchased, by gender, September 2011
                                                                                                                                              • Lifestage dictates the reason for buying gift cards
                                                                                                                                                  • Figure 43: Occasion for which gift/prepaid cards were purchased, by age, September 2011
                                                                                                                                                • Regardless of the occasion, closed-loop cards dominate sales
                                                                                                                                                  • Figure 44: Location where gift/prepaid cards were purchased, by occasion, September 2011
                                                                                                                                                  • Figure 45: Location where gift/prepaid cards were purchased, by occasion, September 2011
                                                                                                                                                • Reasons for not purchasing gift/prepaid cards
                                                                                                                                                    • Figure 46: Reasons not purchased a gift or prepaid card in last 12 months, by gender, September 2011
                                                                                                                                                  • Older respondents prefer more traditional types of gift
                                                                                                                                                    • Figure 47: Reasons not purchased a gift or prepaid card in last 12 months, by age, September 2011
                                                                                                                                                • Appendix: Simmons Cohort Analysis

                                                                                                                                                  • Most popular type of gift cards
                                                                                                                                                    • Figure 48: Gift cards purchased in last 12 months, by gender, April 2010-June 2011
                                                                                                                                                    • Figure 49: Gift cards purchased in last 12 months, by race, April 2010-June 2011
                                                                                                                                                  • Visa is the most popular branded card
                                                                                                                                                    • Figure 50: Gift cards purchased in last 12 months, by gender, April 2010-June 2011
                                                                                                                                                    • Figure 51: Gift cards purchased in last 12 months, by race, April 2010-June 2011
                                                                                                                                                  • Amount of money spent on gift cards, 2010 vs. 2011
                                                                                                                                                    • Figure 52: Amount of money spent on gift cards, by gender, April 2009-June 2010
                                                                                                                                                    • Figure 53: Amount of money spent on gift cards, by gender, April 2010-June 2011
                                                                                                                                                  • Use of prepaid cards in last 12 months
                                                                                                                                                    • Figure 54: Usage of prepaid cards, April 2010-June 2011
                                                                                                                                                  • Most-used prepaid cards, last 12 months, 2010 vs. 2011
                                                                                                                                                    • Figure 55: Prepaid cards used in last 12 months, April 2010-June 2011
                                                                                                                                                • Cluster Analysis

                                                                                                                                                    • Traditional Users
                                                                                                                                                      • Demographics:
                                                                                                                                                        • Characteristics:
                                                                                                                                                          • Opportunity:
                                                                                                                                                            • Declining Users
                                                                                                                                                              • Demographics
                                                                                                                                                                • Characteristics:
                                                                                                                                                                  • Opportunity:
                                                                                                                                                                    • Tech-Savvy
                                                                                                                                                                      • Demographics:
                                                                                                                                                                        • Characteristics:
                                                                                                                                                                          • Opportunity:
                                                                                                                                                                            • Characteristic tables:
                                                                                                                                                                              • Figure 56: Gift card purchaser clusters, September 2011
                                                                                                                                                                              • Figure 57: Gift cards purchased or received, by gift card purchaser clusters, September 2011
                                                                                                                                                                              • Figure 58: Locations of gift card purchases, by gift card purchaser clusters, September 2011
                                                                                                                                                                              • Figure 59: Gift card occasions, by gift card purchaser clusters, September 2011
                                                                                                                                                                              • Figure 60: Gift card purchasing behavior, by gift card purchaser clusters, September 2011
                                                                                                                                                                              • Figure 61: Gift card motivators, by gift card purchaser clusters, September 2011
                                                                                                                                                                              • Figure 62: Gift card uses, by gift card purchaser clusters, September 2011
                                                                                                                                                                            • Demographic tables:
                                                                                                                                                                              • Figure 63: Gift card purchaser clusters, by gender, September 2011
                                                                                                                                                                              • Figure 64: Gift card purchaser clusters, by age, September 2011
                                                                                                                                                                              • Figure 65: Gift card purchaser clusters, by household income, September 2011
                                                                                                                                                                              • Figure 66: Gift card purchaser clusters, by race, September 2011
                                                                                                                                                                              • Figure 67: Gift card purchaser clusters, by Hispanic origin, September 2011
                                                                                                                                                                            • Cluster methodology:
                                                                                                                                                                            • Appendix: Trade Associations

                                                                                                                                                                              Companies Covered

                                                                                                                                                                              • Amazon North America
                                                                                                                                                                              • American Express Company (The)
                                                                                                                                                                              • Apple, Inc
                                                                                                                                                                              • Bain Capital LLC
                                                                                                                                                                              • Bank of America Corporation
                                                                                                                                                                              • CBS Corporation
                                                                                                                                                                              • Chase Home Finance
                                                                                                                                                                              • Citibank
                                                                                                                                                                              • Consumer Bankers Association
                                                                                                                                                                              • Credit Union National Association
                                                                                                                                                                              • Discover Financial Services Inc.
                                                                                                                                                                              • Facebook, Inc.
                                                                                                                                                                              • Federal Deposit Insurance Corporation
                                                                                                                                                                              • First Data Corporation
                                                                                                                                                                              • FMR Corp.
                                                                                                                                                                              • Groupon, Inc.
                                                                                                                                                                              • H&R Block, Inc.
                                                                                                                                                                              • Interactive Data Corporation
                                                                                                                                                                              • LivingSocial
                                                                                                                                                                              • MasterCard Incorporated
                                                                                                                                                                              • Morgan Stanley
                                                                                                                                                                              • National Council of Chain Restaurants (NCCR)
                                                                                                                                                                              • National Retail Federation (NRF)
                                                                                                                                                                              • PayPal Inc.
                                                                                                                                                                              • Post Office Limited
                                                                                                                                                                              • Research In Motion (USA)
                                                                                                                                                                              • Starbucks Corporation
                                                                                                                                                                              • TD Ameritrade Holding Corporation
                                                                                                                                                                              • The American Bankers Association
                                                                                                                                                                              • The American Financial Services Association
                                                                                                                                                                              • The Boston Consulting Group Inc.
                                                                                                                                                                              • Toronto-Dominion Bank
                                                                                                                                                                              • TowerGroup
                                                                                                                                                                              • U.S. Bancorp
                                                                                                                                                                              • U.S. Bureau of Labor Statistics
                                                                                                                                                                              • U.S. Bureau of the Census
                                                                                                                                                                              • Visa U.S.A. Inc.
                                                                                                                                                                              • Walmart Stores (USA)
                                                                                                                                                                              • Wells Fargo & Company

                                                                                                                                                                              Pre-paid and Gift Cards - US - January 2012

                                                                                                                                                                              £3,277.28 (Excl.Tax)