Digital delivery has transformed the gift card industry, making them easier to buy, easier to give, and harder to misplace.
The gift card market is worth $10.7 billion in Australia, and it’s growing at about 10 per cent a year.
But we need to be aware there are smart ways and dumb ways to use gift cards. They can be a handy gift and a money-saving strategy, but they can also waste billions of our precious dollars if we don’t know the traps.
Gift cards: The #2 gift this Christmas
Giving money can be awkward so gift cards are a popular alternative, but when they were made of plastic, they had their drawbacks. Digital delivery has transformed the industry, making them easier to buy, easier to give, and harder to misplace.
Roy Morgan research recently found gift cards would be the second-most-popular Christmas gift this year, with 18 per cent planning to buy them.
The big drivers of the gift card boom have been the COVID pandemic – which supercharged online shopping and digital currencies – and the growth in people using their phone to pay, which also boosted digital gift card take-up.
Gen Z consumers – the ultimate digital natives – are especially fond of digital gift cards as a gifting and savings strategy.
Gift cards as a savings strategy
Gifting is only one part of the rise of gift cards. Globally, it’s estimated that about one-third of gift cards are now bought for the owner, not as a gift.
They can be a way to access extra discounts from retailers. For example, you might buy an Iconic gift card with a 4.5 per cent discount from Cashrewards, and then buy something at a 15 per cent discount when it’s on sale on Black Friday, effectively ‘stacking’ two deals.
Or you might get 4 per cent off a Woolworths WISH gift card from the Entertainment Book and use it to buy petrol, ‘stacking’ the fuel discounts so that you effectively score an extra 8c/L off.
Points collectors can also get boosted points offers with 20 times the usual points on certain gift cards each week at Coles and Woolies.
You can also convert your points to a range of gift cards in the Flybuys and Everyday Rewards and Qantas stores, allowing you to spend your points on essentials and on-sale items.
Finally, there are businesses such as Voucha that buy and sell unused gift cards so you can cash in your unwanted gifts and buy others at a 10 per cent or 20 per cent discount, for example.
Gift card traps
Not all gift card buyers save money, however.
Gift cards are not quite the same as cash because they do expire and billions of dollars go unused. This is what is known in the industry as “breakage” and it’s why businesses love gift cards: they know they’ll never have to provide anything in exchange for a percentage of sales.
Also, 61 per cent of consumers spend more than the value of the gift card, so it’s a win-win for businesses to sell them.
The authors of the famous Freakonomics book wrote in 2007 that gift cards were like gym memberships because about 10 per cent of gift cards in the US were never redeemed – that’s US$8 billion worth a year.
It’s estimated elsewhere that the number of unused gift cards drops by 25 per cent annually, maybe because digital gift cards are less likely to be misplaced.
But a Finder study this year found Australians had unused gift cards worth a total $1.9 billion lying around and 39 per cent of us are missing out on an average of $243 each.
Since 2019, new legal protections mean gift cards must be valid for at least three years and cannot have hidden post-purchase fees. But some still have 5 per cent transaction fees when you buy them so do factor that in.
So, make sure you use your gift cards and spend every last dollar on them – otherwise the only real saving is for the business that sold it, not for you.