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WITH SOARING GIFT CARDS SALES POISED TO EXCEED $80 BILLION IN 2006, UNUSED CARD VALUES ARE ALSO ON THE RISE



TowerGroup Analyst Available for Comment on the Benefits and Challenges of Giving Gift Cards This Holiday Season


NEEDHAM, MA, November 20, 2006 - With the holidays fast approaching, 'tis the season for gift cards. This relatively new segment of the U.S. payments industry continues to show rapid growth - particularly in the area of bank-issued or "universal" gift cards that can be used beyond just a single retailer. Yet in some cases, gift cards appear to make better presents for retailers and card issuers than the actual gifter or receiver.

Research and advisory firm, TowerGroup, expects gift cards to be a major hit again this holiday season. Combined gift card sales in the U.S. will exceed US$80 billion in 2006 - a more than 20% increase over their 2005 level - with breakdown by segment as follows:

  • Retail: $29 billion
  • Restaurant / Fast Food: $18 billion
  • Miscellaneous (gas, services, etc.): $12 billion
  • Universally accepted (i.e., bank-issued): $23 billion

Despite the popularity of gift cards with consumers, the space continues to be a source of controversy in terms of fee-structures and redemption rules. While retailers do not generate revenue until a card is either used or permitted to be declared as dormant, they do receive a "free float" on unused cards. One large retailer recently showed a $42 million benefit to its income statement for unused gift cards more than two years old.

TowerGroup notes that the unused value on these cards, often referred to as "breakage" in the payments industry, has a bigger impact on consumers than the combined total of both debit and credit card fraud. While debit and credit card fraud in the U.S. totals $3.5 billion annually, TowerGroup estimates that nearly $8 billion is lost due to unredeemed value, expiration or loss of gift cards. Unlike dormant accounts in the traditional credit card realm, which typically fall under escheatment laws regulated by states, anonymous gift cards often languish on retailers' accounting books.

Brian Riley, a senior analyst in the TowerGroup Bank Cards practice, is available to speak with members of the media regarding the gift card phenomenon. He can:

  • Provide background information on the evolution of the current gift card market
  • Clarify common misunderstandings about the differences between retailer-issued and bank-issued (universally accepted) gift cards
  • Define the regulatory landscape relative to the gift card market
  • Offer projections for how the 2006 holiday season may net out versus prior years, in terms of consumer gift card "gifting"
  • Underscore the questions consumers should be asking about gift card rules and fees, before they buy

To arrange an interview with Mr. Riley, please contact Lisette Kwong at +1.212.642.7753 or Lisette.kwong@edelman.com.

Those interested in subscribing to a TowerGroup research service may call +1.781.292.5200 or email service-info@towergroup.com.

About TowerGroup: TowerGroup is the leading advisory research and consulting firm focused on the global financial services industry. A respected source for trusted information and advice, TowerGroup brings many of the world's leading financial institutions, technology companies, and professional services firms a deeper understanding of the business and technology issues impacting their organizations. Headquartered near Boston in Needham, Massachusetts, and with offices in North America, Europe, and the Asia-Pacific region, TowerGroup serves a global client base. Visit www.towergroup.com for more information.

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