Gift cards always rise in popularity around the holidays. It is an ideal gift as well as a very useful tool to implement brands’ marketing strategy. However, they shouldn’t be mixed up with other methods of payment, especially prepaid cards. Both are offered to consumers but are different in scope. In what ways is their impact different?
The main distinction between prepaid cards and gift cards
Both tools are based on the same idea: a certain sum of money is stored on a card and customers will be able to spend it. However, they shouldn’t be lumped together!
Gift cards are a means of payment. On them, we find a set amount that customers will only be able to spend. They can be open or restricted loop gift cards, that is to say they can be spent in several different brands until the money is used up. Or they can be closed loop cards, meaning they can only be used for one single brand. The expiration date is also set, its length usually depends on the retailer and country.
Prepaid cards, on the other hand, can be used with more flexibility. Purchasing products, withdrawals or paying bills : a lot can be done! Moreover, unlike gift cards, prepaid cards can be reloaded indefinitely. It’s an ideal way to learn how to manage a budget.
What else sets them apart?
Gift cards are more easily omnichannel. For instance, upon receiving a plastic gift card, one can swiftly save it on their smartphone thanks to the code or bar code. It enables them to have a digital version of the card. That way, not only can they access it at any time, but both format are always linked. What’s more, brands can offer their gift cards online as well as in-store.
As for prepaid cards, omnichannel remains tricky. While gift cards are getting more flexible depending on the multiple consumer pathways, prepaid cards still have some way to go.
Level of customisation
It’s easier for brands to customise gift cards. They can add their logo, and customers can choose the design among those offered, or even choose their own picture or video. They can also add a personal message or set the amount of their choice, …
In this case, prepaid cards score more points for their flexibility. Gift cards are only meant to be used for purchases, on one or several occasions and in one or more retailers. Prepaid cards, on the other hand, can be reloaded. The owner can use it in whichever shop accepting them, or in a specific network. They can also be used to pay online bills, among other financial transactions.
When it comes to prepaid cards, the main drawback is the running costs. They have fixed annual or monthly charges set around ten euros. But there are also added charges when reloading the card, which usually represent between 2 to 10% of the transferred amount.
Gift cards have an initial cost that varies depending on the number of cards issued, but it is nowhere close to the prepaid cards’. And since there is no more printing or shipping, having a digital version of the cards has lowered drastically the issuing costs.
What about brands ?
Brands are mastering their gift card programs
Gift cards are a type of branded-currency. When brands deliver gift cards, they each deliver their own brand’s currency and they’re gaining control over this tool. Brands can improve the ordering channel, customisation and security requirements. They hold the keys to fully mastering and managing this tool (maximum amount, expiration date, places it can be spent, …). On top of offering a new service to their customers, it can give brands an added advantage in their marketing and communication strategy. From customer acquisition and retention to customer service, gift cards are the new answer to the different problems faced by brands.
For example, if a brand wishes to encourage online shopping on their new mobile application, it can design a marketing campaign in which they offer a gift card with a small amount that can only be spent on the application.
Co-branded prepaid cards
Although prepaid cards are meant for consumers to manage their budget, brand can still use them! They’re called co-branded prepaid cards (another branded-currency tool). In order to offer them, brands create financial partnerships to issue the cards.
In a joint effort with the issuer, brands can create a point system, with rewards and benefits when the card is used. It can be used in other stores but the rewards are only in the issuing brand’s sales points. That way, in loyalty programs, customers can gain points with other brands as well.
The Ikea Family credit card is an eloquent example. Holders of this card can benefit from it in their home projects, such as renovation works for instance. The card enables them to access an interest-free payment plan or deferred payment…
For example, if a brand wishes to encourage online shopping on their new mobile application, it design a marketing campaign in which they offer a gift card with a small amount that can only be spent on the application.
Prepaid cards and gift cards are quite different and don’t fulfill the same goals for brands. However, that doesn’t prevent them from being complementary, especially when it comes to customer retention and loyalty. Starbucks is a compelling example. Their loyalty program is built on indefinitely reloadable prepaid cards that can be used in their coffeehouses. The more customers buy, the more they receive points they can use to buy gifts. Moreover, at times, the brand sends free gift cards with a predetermined amount. Customers are able to spend these cards separately, or transfer the amount on their prepaid card for a later use. In short, prepaid cards play their part in the long run, whereas gift cards have more impact in the short term.
Suggestions for further reading
Digital Gift Cards : an asset in crisis management
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