Single Purpose Gift Cards in U.S. Acquiring
Our most recent research shows that single purpose gift card programs, in which an acquirer provides gift cards and related processing to its merchants, have become a highly ubiquitous product in U.S. acquiring with nearly 90% of acquirers offering such gift cards. Of the acquirers providing gift cards, over 70% do so through third-party processors that specialize in the product as opposed to offering gift cards through an in-house capability. Although the offering of a gift card is highly consistent across acquirers, the pricing for such gift cards is not:
- The median acquirer per card charge to a small merchant is over $0.35, but 44% of acquirers do not utilize such a fee.
- The median transaction fee is $0.19 to $0.20, but 31% of acquirers do not use a transaction fee.
- The average acquirer charges merchants monthly fees that are better than $17 a month, but 41% of acquirers have no monthly fee.
- The median set-up fee for acquirers is $85 to $100, but 44% of acquirers do not use set-up fees.
Although our tracking over the years suggests that pricing structures and pricing levels, in general, have increasingly converged, pricing for this gift card product remains highly divergent across acquirers. In part, we believe this phenomenon arises from the fact that the indirect economics of gift cards is so substantial that the direct fee income becomes a secondary consideration for acquirers.
More specifically, gift card programs have substantial attrition benefits. We commonly measure attrition rates for merchant segments with gift card offerings that are better than attrition rates for segments without the product by high single digit percentage points. In part, this retention advantage is a function of a multi-product relationship between acquirer and merchant and of a more complicated POS application. However, the retention benefit also results because it is diseconomic for acquirers to convert a gift card program that is too small, and many acquirers will not convert a program less than 500 to 1,000 cards. In our experience, the offering of such gift card programs and the related retention benefits are near-universal among acquirers even if the pricing structures they utilize are not.
For more information, please contact Marc Abbey, Partner specializing in Merchant Acquiring,firstname.lastname@example.org
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