As gift cards grow in popularity with consumers, for retailers they are the gift that keeps giving. Some $41 billion in gift cards have not been used since 2005, according to the research firm TowerGroup, and much of that cash will go straight into the bottom lines of the issuers.
Gift card transaction volume in the U.S. passed the $100 billion mark in 2011, a new industry high, TowerResearch found in a recent report.
About 85 percent of gift cards are used within 60 days. The unused value from gift cards has actually shrunk over time in part because of new regulations, according to Brian Riley, senior research director of TowerGroup.
Riley says the $41 billion of unused value since 2005 includes fees and value lost after expiration dates. But hidden fees and expiration dates for gift cards have decreased substantially since the Card Accountability, Responsibility, and Disclosure, or CARD, Act of 2009.
In 2007 alone, TowerResearch estimated $8 billion in lost gift card value. That amount has steadily fallen to about $2 billion in lost value for 2011.
That's good news for consumers but still an awful lot of money thrown out the window.
"That loss number has really shrunken in the last couple years," he said. "Since the CARD Act came into play, it has eliminated expiration dates and junk fees on the cards."
The CARD Act established that most gift cards can not expire until five years after the last load onto the card. There are two major types of gift cards. Most "closed" gift cards, which are store-specific, tend not to have any expiration date. "Open" gift cards are issued by the four major U.S.-based payment networks: American Express, Discover, MasterCard, and Visa.
Riley said regulatory requirements have helped protect consumers but the gift card industry could do more -- like give consumers the ability to register a gift card or make it easy to do so.
One company he said has a "really good program" is Starbucks. Customer can go online to link a gift card to a loyalty program. And if you lose the card, you can get it back.
"That's still an open channel," he said. "But legislation has been really positive so that you at least get core value out of a gift card."
Since the CARD Act, there has been a major improvement in the loss rate, or the loss of stored value through lost/stolen cards, fees, and expired cards since TowerGroup began tracking gift cards in 2005.
Also referred to as "spillage" in the industry, TowerGroup found that through 2008, expired cards had the highest channel for lost consumer value, accounting for 52 percent of spillage, followed by fees. Fees, such as a $1 service charge for inquiring about your balance, caused an estimated 39 percent in spillage. Misplaced cards contributed 9 percent of total lost value.
Anson Tsai and Timothy Wong founded Cardpool in 2009, which describes itself as the world's largest and fastest growing gift card marketplace. Customers can buy discounted gift cards plus sell and exchange gift cards. Cardpool only sells gift cards that have no fees and no expiration dates. The company says hundreds of thousands of customers have used Cardpool to buy or sell their gift cards.
The company, based in San Francisco, provides free shipping for buyers and sellers and guarantees every transaction.