The prepaid category is expected to continue to grow in 2016, but the rise of digital gift cards could impact convenience store sales of physical gift cards.
Mercator Advisory Group projected that the total open-loop prepaid card market will have a compound annual growth rate of 7% through 2018. Closed-loop overall will have a compound annual growth rate of 3% through 2018. The slower growth on the closed-loop side is due to the market being more mature.
Convenience store operators should think about how they can adapt to the trends shifting cards towards digital distribution and look at ways they can offer prepaid services beyond simply selling gift cards off a j-hook, said Ben Jackson, director of the prepaid advisory service at the Mercator Advisory Group in Shrewsbury, Mass. “PIN on receipt solutions may be an opportunity for them,” he said.
Other options include swipe reloads or QR codes on displays that enable shoppers to buy digital cards.
“On the physical side, c-store operators should examine what kinds of cards they have in their racks. Digital content cards will remain popular, especially for young people who don’t have credit cards to use for online shopping. Gift cards can be the link to digital currency,” Jackson added.
General purpose reloadable cards will be affected by regulations in 2016, specifically new rules from the Consumer Financial Protection Bureau. “Many changes will affect disclosures, so c-stores may find that they will need to change the way that prepaid cards are displayed and might need to change their stock,” Jackson said.
Convenience stores will remain an important channel for closed-loop cards, which will continue growing. “Operators will want to make sure their displays are in good locations and that they have things like greeting cards to have an added value if gift cards are an important part of their business,” Jackson said.
A Mercator report found that after a decline in 2013, sales of in-store gift cards rose 9% in 2014. New cards made up much of that gain, with reloads accounting for slightly more than 10% of total volume.
Steve Magestro, president of Mad Max Convenience Stores with 10 locations in Wisconsin, noted Mad Max currently offers major brand fuel gift cards behind the counter.
“We have looked at (offering closed loop) cards, but all the really good cards that people want seem to be locked in with the big boxes or very large c-store companies. I think it will grow if we could find a supplier that would give us the same cards the big box’s have. If not, it will not grow for us,” Magestro said.
To grow the category, Mad Max plans to offer its own Mad Max reloadable cards in late 2016 or early 2017 that customers can use in-store, at the pump or at the car wash.
“Basically anywhere on our lot,” Magestro said. “When we roll it out we want to make sure we do it right so there is no rush at this point. We do want it to be a real value to the customer.”
Stay tuned to Convenience Store Decisions‘ March issue, where we delve into 38 in-store categories to identify emerging trends and garner retailer analysis to forecast what operators can expect for 2016 and beyond.