• by Jack Loechner , Staff Writer @mp_research, April 5, 2010

According to new data from Javelin Strategy Research,  in the past few years, card networks have changed their prepaid and gift focus as core, rather than emerging, products. The global economic downturn has furthered this paradigm shift, with pay?now and pay?before products gaining increasing prominence as credit markets have tightened.  

Nevertheless, in 2009, the combined use of prepaid and gift cards shows a 5 percentage point decline from 66% to 61% of consumers, reflecting a decrease of 11 million consumers. With unemployment up to 9.7% as the nation officially enters its third year of recession in 2010, U.S. consumers have cut back on unnecessary expenditures, including prepaid products, and particularly the purchase of gift cards.  

Combined Consumer Use of Prepaid and/or Gift Cards, 2007?2009 (U.S. Aduts in millions)
	Use in last 12 months (millions)	% Use in Last 12 Months
2007	131	58%
2008	152	66%
2009	141	61%
Source: Javelin Strategy & Research, March 2010

Indicators from leading stakeholders in the gift card market suggest that the decline in gift card sales and value began to turn around by year?end 2009 and will regain momentum in 2010 in keeping with prepaid products.

Notably, both American Express, the largest U.S. issuer of gift cards, and BlackHawk Networks, the sizeable third?party gift card provider owned by Safeway, reported increasing gift card revenue in 2009.

The study suggests that prepaid products continue to present a prime opportunity to help unbanked/underbanked consumers develop a trusting relationship with a financial institution. According to Javelin data, approximately one in every five 22% of American households, or 26 million households, is underbanked, defined as having no checking and/or savings accounts. 8%, self?identify as having no financial products.

Language, trust, economic status, and many other factors play a role in barriers to banking adoption, but repaid or payroll cards offer a way to start a financial servicing relationship without the fear of overspending that is possible with credit or the anxiety of overdrafts that are possible with checking accounts, says the report.

Prepaid Use by the Underbanked vs. All Consumers
Last Used	Underbanked	All consumers
Never	65%	69%
More than 12 months ago	11%	9%
In the last 12 months	5%	5%
In the last 90 days	6%	6%
In the last 30 days	7%	6%
In the last 7 days	7%	5%
Source: Javelin Strategy & Research, March 2010

Use of gift cards demonstrates a clear age progression, with heaviest usage concentrated in consumers under 45

• In comparison with prepaid cardholders, studies by gender reveal a preponderance of female gift card users: 40% compared to only 32% of males using gift cards in the last 90 days
• By ethnicity, there are no significant differences in the use of gift cards. This may be because providers have specifically designed products centering on a cultural or ethnic focus
• Higher use of gift cards by younger consumers may reflect convenience

Gift Card Use by Age (Users in Previous 90 Days)
Age	% of Gift Card Use
All consumers	36%
18 to 24	45%
25 to 34	45%
35 to 44	40%
45 to 54	32%
55 to 64	25%
65 and older	29%
Source: Javelin Strategy & Research, March 2010

More information from Javelin Strategy & Research can be found here.