Viewpoint: The Case for Gift Card Exchange

By Tammy Durston, Blackhawk Network

Most U.S. consumers have a few gift cards tucked away in a kitchen drawer, wallet or at the bottom of a purse. These gift cards might be usable in stores that are geographically too far or at retailers that just don’t appeal to the gift card recipient. In the past, unspent cards simply languished in those drawers, wallets or purses—never to be redeemed. But now, there’s an option for getting the value of that gift card, through exchanges where you can swap your unspent gift card for another or even for cash.  

Gift card exchange is a win-win for everyone, from the consumer to the gift card retailer.

Why Are Gift Cards So Popular?

Before focusing on gift card exchanges, let’s get back to the basics: Why are gift cards so popular? According to a study conducted by Blackhawk Network in 2014:

• Gift cards are good for receivers. Gift cards have been one of the most requested holiday gifts for the last several years, including the number one requested gift last year according a study released by the National Retail Federation (NRF). In a recent national study of the psychological motivations of gift card buyers and receivers, in which more than 2,500 respondents were surveyed, 85 percent of gift card recipients said they used that card to treat themselves to items they wouldn’t normally purchase; while 67 percent said they prefer gift cards over other gifts.
• Gift cards are good for givers. Gift givers want receivers to be happy, and gift givers know gift cards are universally appreciated. Eighty-eight percent of gift card buyers said they think most people enjoy receiving gift cards so they can pick the gift they want. Convenience is another driver of gift card purchases, with 79 percent of gift card buyers citing this as the reason for selecting this option over gifts. Sixty percent of respondents said they simply prefer to give gift cards over other gifts. Shoppers also reported that third-party gift card malls help them in this process, with 75 percent of those surveyed saying it’s easier to buy gift cards as gifts because they’re sold in many places where they shop regularly, like grocery stores.
• Gift cards are good for retailers. When shoppers redeem gift cards in a store, they’re generating incremental traffic for the retailer. In addition, gift cardholders often spend more than the amount of the original gift card. In the survey, 59 percent of gift card users stated that this was the case.

Unspent gift cards are no good for anyone. Getting the right gift card into the right hands is good for everyone.

The Exchange Model for Gift Cards

An estimated 63 percent of U.S. consumers purchased a gift card in the past year (BHN Gift Card Segmentation Study, 2014). With this level of prevalence, it’s only natural that a secondary market has emerged. This is similar to the rise of secondary markets for other established product categories, such as tickets. Stubhub, the first to create a secondary ticketing sponsorship category, is a good example of how well an exchange model works. Now, even sporting brands, like the NFL, work directly with Stubhub.

But how does this model work for gift cards?

You might have received a pile of gift cards for different stores as wedding gifts, but none help you get the couch you really need. Alternatively, you might have received a gift card for a store at which you’d never consider shopping, or you might really want an item that’s not available at the store for which you have a gift card.

The ability to exchange a gift card can solve these problems and more. However since “used” gift cards are basically loaded with cash and ready to go, buying one from a private seller can be risky. A formal gift card exchange site offers a safe, legitimate alternative for secondary-market gift card shoppers and eliminates the chance you may be purchasing a fraudulent card.

Blackhawk Network’s subsidiary, Cardpool, is one such gift card exchange. Cardpool brings buyers and sellers together in one secure place and helps everyone get exactly what he or she wants. With Cardpool, you can exchange your unspent gift card balances for a different gift card or even for cash.

In a Blackhawk survey of 715 Cardpool customers conducted in April 2014, 58 percent of respondents said they exchanged a card because it was for a retailer at which they don’t shop, often because there were no convenient locations. Others stated they just did not want the gift card, and some said they wanted to exchange one large gift card for several smaller gift cards.

Cardpool enables a customer to exchange gift cards online, at kiosks or at certain retail stores, and Cardpool exchange participants can be confident their transactions are secure. When purchasing a gift card from a seller, Cardpool first verifies the balance, then guarantees the balance to buyers, with the purchase guarantee detailed at Cardpool.com. The seller receives up to 92 percent of the card’s face value, and buyers purchase the card for up to 35 percent off its stated value. In each case, pricing is based on demand for the particular store brand.

Motivated Shoppers

Shoppers who buy gift cards at exchange sites are motivated shoppers. They are motivated to do business with particular store brands, and they’re excited to buy discounted gift cards for a retailer they frequent. The retailer doesn’t bear any cost of the discounted price as the gift card was originally sold at full price. Since these are loyal customers to the retailer (they sought these gift cards out), they will most likely spend more than the amount of the original gift card at a rate higher than the average percentage of overspend, where 59 percent reported overspending (BHN Gift Card Segmentation Study, 2014).

Although most Cardpool customers in the April 2014 study conducted their exchanges online, 15 percent exchanged their gift cards in-store. Of those in-store exchangers, 23 percent made a special trip to the store to conduct the transaction, and of these customers, 80 percent reported making other purchases during the visit. This is a clear bonus to the retailer hosting the gift card exchanging service.

Most gift card exchangers would like to see more locations add gift card exchanges, such as local grocery stores, drug stores, banks, malls and any other frequently shopped stores, making the process even more convenient. One retailer responding to the growing demand is video game, consumer electronics and wireless services chain GameStop, which recently announced that gift cards from other retailers can be exchanged online for a GameStop e-gift card that can be redeemed at a GameStop store or at the GameStop site.

Gift card exchanges, like Cardpool, are a win-win for consumers and retailers. They allow the consumer to get the card they want and will use, while giving retailers additional access to customers who love their brand and a new way to generate incremental spend, online and in stores.

Tammy Durston is senior director of research and analysis at Blackhawk Network, a Pleasanton, Calif.-based provider of prepaid and financial payments products. Her research helps guide Blackhawk’s strategy for its diverse product lines and geographies. She can be reached at [email protected].