T&E Gift Cards – Is Digital the Key to Unlock Growth?

Navigator Edition: September 2016
By: Aaron Mercurio and Sage Stahmer

The U.S. gift card market is resilient, with annual growth rates steadily tracking between 2-6% since the recession of the late 2000s. The primary driving factors of that growth are two-fold:

  • Gift cards are consistently a preferred choice of consumers; demand remains steady even as consumer preferences between retailers/brands shift given their convenience.
  • Gift card providers continue to innovate, including ‘gift card malls’ in grocery or convenience stores, corporate incentive and B2B distribution, and electronic (e-gift) card delivery and fulfillment options.

Despite the success and longevity of many national retailers’ gift card programs, data and research indicates that large T&E brands have enjoyed less success in gift cards. Historically, T&E gift cards have been constrained by several inherent challenges including the lack of a proprietary physical distribution channel, a complex online redemption model, and a high average ticket in terms of airline and hotel room costs. That said, we have often wondered whether the introduction of e-gift cards could alleviate some of the obstacles.

To that end, we scanned the market by reviewing 16 national T&E brands — focusing on airline and hotel – to review their current gift card capabilities across major channels. The results of our analysis are captured in Figure 1.

Figure 1: Sample of Market Offerings

figure-1_-sample-of-market-offerings1 First Annapolis Consulting check for physical gift cards on proprietary company website.
2 First Annapolis Consulting check for gift cards on proprietary company website.
3 Includes retail distribution, digital/social media, B2B.
Source: First Annapolis Consulting research and analysis.

In a segment of the market where 90%+ of transactions occur via the web or mobile, we were surprised that nearly half of the organizations surveyed do not currently offer an e-gift card. E-gift cards would be a better fit both for the distribution of the gift card as well as the redemption. It is also interesting that some brands provide a substitute product, namely the ability to gift miles or rewards points via electronic certificates, but this requires the gift giver to be an existing loyalty member. This dynamic is in stark contrast to gift cards, where most often the gift recipient is the brand loyalist. One better example of this type of solution can be found at SOUTHWEST.com, where customers can convert miles to gift cards.

Taking this a step further, there may be an opportunity for T&E brands to better integrate their successful loyalty programs with prepaid/gift cards in order to provide consumers with a more holistic brand and gifting experience:

  • Enable customers to exchange their gift cards for miles/points and/or use miles/points to purchase a gift card.
  • Leverage proprietary mobile apps to improve the purchase and redemption opportunities available for gift card programs.
  • Convert flight vouchers, hotel stay nights into an e-gift card and simplify all of the above into a more fluid, singular currency.
  • Strengthen loyalty partnerships across brands, including cross-acceptance, increased points/miles liquidity, and utility via a digital prepaid experience.

Admittedly, the most integrated loyalty-gift card programs such as Starbucks may be too high of a watermark. That said, it is likely that advancements in technology coupled with innovation could enable T&E providers to compete effectively with retailers and brands for the ~$100+ billion dollars loaded and redeemed each year in gift cards in the U.S.

For more information, please contact Aaron Mercurio, Manager, aaron.mercurio@firstannapolis.com; or Sage Stahmer, analyst, sage.stahmer@firstannapolis.com. Both specialize in Credit Card Issuing.

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