Payment Industry Insider

I recently attended the VISA Prepaid Forum. This is an annual event that is going on it’s fifth year. Over those years I have seen many ideas come and go related to the prepaid industry and the gift card market in particular. I have also seen the market mature from just barely a concept to a full blown business unit/category within the VISA organization and within many financial institutions across the US and internationally (in fact, did you know that prepaid cards issued outside of the US make up more than a majority of the overall VISA Prepaid business in terms of volume?).

Well despite all of these changes and maturity there is one thing that has seemed to hold true every year around the time of the Forum (or usually immediately right after it, just like this year) and right before the holidays. Guess what that is?  OK, I will tell you…..

The thing that always comes up is negative press about the gift card model and how consumers are being ripped off and victimized by financial institutions and others who market and sell the cards.

Unfortunately, many times the media falls short on their accuracy when describing the various gift card features and associated fees. And the industry has vastly improved over the last five years with plainer language, terms and conditions and a “weeding out” of the unscrupulous marketers in the space who failed to divulge the card fees (which in many cases were indeed exceedingly high).

Here is the personal check list that I use to quickly review whether an open-loop gift card (open-loop meaning a card branded with the VISA, MasterCard, American Express or Discover logo) is worthy of my purchase:

1. How much is the card to purchase? Many marketers and financial institutions charge a fee to purchase the card. The fee range I see today is anywhere from $1 to $3.95 per card.

2. What is the card’s expiration date? Many cards expire anywhere from one to years after the purchase date. Obviously depending on your spending habits the later the date is the better because it means the card can be used up until that date.

3. Disclaimer to #2 above…the expiration date is important because if you still have money on the card after the expiration date the card issuer many time charges a fee to get a new card issued.

• You need to ask, “What is the maintenance fee?” These used to be called “breakage” in the industry but that word and concept has virtually disappeared after it received so much negative press and pushback from the public…..these “maintenance fees” are where some financial institutions make revenues.
• They are typically charged after a certain period of time (usually in months) and are described in such a way that the “first X number of months are included free with use of the card. Thereafter a $Y fee is charged per month on the remaining balance. The financial institution is betting that you do not use the entire balance on the card within that period and then they will start to take a certain fee out per month.
• So what does this mean to you and me? Again it depends on your personal spending habits but as a rule I also look for a longer period before the card begins to be hit with a maintenance fee. Typical periods today range from 6 months maintenance-free to 2 years maintenance-free.

4. Are there any other fees associated with the card? Transaction fees, online or phone fees to check your balance? I look for a card with no other fees.

5. Does the card have an online website and/or a way to check my balance or last X number of transactions via the phone? Look for a YES to both questions.

6. I also tend to look for a card that has some unique “gifty” packaging because I know I don’t want to also have to go buy a greeting card to put the card in….who has time for that? I just want to get the gift card and then dash over to my family’s holiday meal and give out the cards. Instant gratification seems to work best in my family.

Side note: I mentioned instant gratification, so let me tell a quick gift card story from last holiday season. I gave my sister a gift card at our family gathering and she opened the card envelope (not one I bought separately, but one the financial institution provided) and saw the balance and said, “great, I need to stop and get gas. This will work perfectly.” Now before you accuse me of being too cheap to spring for more than a $25 gift card for my sister, it was to fill up her tank and she does drive an SUV so the card was a little more than $25 plus the great thing is that she can spend the balance on another tank of gas or whatever. Back to instant gratification, she saw an immediate use for the gift and she used the card immediately. In fact, 80% of all card values are spent in the first 30 days after receiving.

So I started out by talking about the recurring negative press around gift cards that crops up like clockwork every year right before Thanksgiving and I ended up giving you tips on what to look for when buying a gift card. I guess the takeaway is really that you need to not always believe every negative article that you read.

Gift cards with a dose of the usual prudence on the buyer’s part are a great product. They keep people like me out of the malls clogging up the efficient system of the mall shoppers and they provide an instant gratification to the recipients. And I always tell my gift card recipient’s to use the card just like cash. You never let that $100 bill from past holidays linger too long in your pocket and you shouldn’t let that snowman adorned gift card melt in your pocket either.

Shhhh! I think I hear a dull cheer from the financial institutions and the gift card buyers and recipients for creating a win-win value proposition. After all, when was the last time you went down the checkout line at Target and didn’t see a gift card? They are becoming a new form of currency replacing cash gifts and the VISA/MC/AMEX/DIS cards are even more popular this year because people now get the fact that you can use them in more than one type of store. So when the shovel or hammer at Lowes is not the one you want, you can take yourself and the gift card you just got from someone like me over to Lowes, or over to the Apple Store to pick up a new iPhone. See? No buying restrictions….and with that - WHAT JOY!