Prepaid gift cards comprise consumers' top holiday purchase.
Since 2004, approximately two thirds of consumers buy prepaid gift cards. That represented a $35 billion consumer market in 2005 and the prepaid card has expanded to corporate, government and customer gift, rewards, benefit and expense reimbursement programs.
"Prepaid" describes most of the products on the market today. The term "prepaid" is associated with products for which the prefunded value is recorded on a remote database, which must be accessed for payment authorization. There are a variety of applications for prepaid cards, including gift cards, payroll cards, flexible spending account cards, government benefit cards (such as food stamps), insurance claim cards, employee reward cards, travel cards, remittance payment cards, and transportation cards. Since the mid-1990s, they have largely served as a replacement for paper-based payment instruments and related devices, such as gift certificates and check-based rebates. The term "gifting" seems to be derived from the world of accounting, as in writing something off as a "gift."
The freedom of choice by the gift recipient has been the driving force for customer acceptance of prepaid gift cards. However, that does not indicate acceptance of all prepaid card products. That degree of acceptance will vary by individual product usage. Profitability varies in the case of gift cards and cost savings can vary when prepaid cards replace paper-based payment methods.
Expect ongoing experimentation with prepaid cards to balance user acceptance with organizational effectiveness and profitability...like the new "gifting" feature that allows users of Apple Computer Inc.'s popular iTunes to buy a song, album or video and give it to another user.