Towergroup, a research and advisory firm focused exclusively on the financial services industry, estimates spending on gift cards this year could reach $91 billion, an increase for the first time in three years.
Analysis in the TowerGroup ViewPoint, "CARD Act Impact: New Regulations Set to Wipe Out Gift Card Junk Fees and Reposition Market," predicts this growth will continue, with the industry reaching $100 billion in sales by 2012.
In addition to the increase in spending on gift cards, "breakage" (the value left unused on gift cards) will decrease by almost 50 percent, compared to 2008, to 3.1 percent, or $2.5 billion.
This significant decrease is due in large part to increased consumer protection under Title IV of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, which severely restricts expiration and nuisance fees for gift cards, a subset of prepaid debit cards.
The CARD Act ensures that all gift card funds must remain valid for five years since their last load and any expiration information must be explicitly communicated on the card itself.
Another reason "breakage" will decrease, Towergroup estimates, will be due to consumers seeking to stretch every dollar this shopping season, given continued economic uncertainty.
"The new protections afforded to consumers under Title IV of the CARD Act have greatly increased consumers' willingness to use gift cards as a form of gift giving," said Brian Riley, senior research director, Bank Cards, at TowerGroup.
Despite any lingering down-sides to gift cards, and there are a few, they're likely here to stay as American shoppers become more dependent on e-commerce.
"Additionally, as new technology, such as mobile and social media mediums, are used for electronic gifting, the gift card industry will position itself for long-term growth in both domestic and international markets," said Riley.
TowerGroup's research shows that consumer preference for general-purpose reloadable network cards is rising while sale of retail-specific gift cards is decreasing.
Interestingly, the general-purpose cards, or "open-loop" cards, are more likely to have expiration dates, or "valid thru" dates -- a date in which a card must be replaced if there is unspent money remaining -- while retail-specific cards, or "closed loop" cards tend to carry no fees and never expire.
