• by Aaron Baar , December 6, 2007

Despite lingering consumer concerns about possible expirations and hidden charges on prepaid gift cards, the market for such cards has not yet reached a saturation point and is not expected to level off, according to research published by Packaged Facts.

According to the report, the annual volume of gift card spending will exceed $50 billion by 2012, up from nearly $40 billion in 2007. The report noted the distinction between gift cards--debit cards intended as gifts--and other prepaid debit cards that people may purchase for their own use.

"Gift cards have clearly been accepted by the mainstream for an increasing variety of events in which gifts are normally exchanged and for an increasing variety of ways to spend those gift card funds," according to the report. "Purchasing the cards and spending their loaded funds is convenient, and, with greater use of the online channel, will be even more so in the future."

The market hasn't tapped out yet. According to the report, some 67% of American adults are expected to purchase at least one gift card by the year 2012--up from the 61% who purchased gift cards in 2006. In the survey of 1,000 adults, Packaged Facts found that nearly 20% of the people who bought gift cards during the during last year's holiday season spent more than $100 on them. (And while gift cards amounted to only 4% percent of all in-store payments last year, 53% of gift card users reported spending more than the card value during their store visits.)

And spending on them is likely to increase. According to the survey, 35% of people who bought gift cards over the past year said they expected to spend more on gift cards during the next year (nearly 10% of them said they would spend "significantly more.") Only 5.5% said they would spend less, while the remainder said they would spend about the same amount.

The report notes that consumers still have lingering concerns about gift card pitfalls such as expiration dates, diminishing card value over time and hidden charges. However, with awareness comes discernment," notes the report. "Consumers are learning to differentiate among cards based on fees, and are becoming aware that many big-name, closed-loop cards entail no fees."

Such hidden fees and expiration dates prompted Consumer Reports earlier this year to launch a public education campaign surrounding gift cards. The campaign began with a full-page at in The New York Times warning that unredeemed gift cards were easy money for retailers. According to Consumer Reports' survey, 27% of gift card recipients did not use their cards. TowerGroup has estimated that nearly $8 billion was lost due to unredeemed value, expiration dates or lost gift cards.

While the Packaged Facts report says that several regulatory issues need to be resolved, many retailers and other gift card issuers have also taken steps to remove fees. "With time and consumer education, any harm done to product integrity may well be rectified," according to the report.