For well over a decade, US consumers with unwanted gift cards or vouchers have regularly sought to unlock their inherent value, by logging on to the country’s ever-growing number of online gift card exchange websites to buy, sell or swap gift cards.
But while the American ‘secondary gift card market’ (SGCM) has evolved into an online market to be reckoned with, its popularity has not extended to the UK.
Peer-to-peer trading is not a new phenomenon, online sales of used or unwanted gift vouchers/cards goes back to 1995, with the launch of eBay. Selling and bidding for gift cards quickly grew in popularity but it wasn’t until 2003 that the Internet’s first SGC marketplace was launched by Swapagift.com.
The Swapagift.com model focused exclusively on the buying, selling and swapping of merchant gift cards. The three-tier model gave consumers an active exchange for liquidating and trading cards in the SGCM.
So if these websites are a part of everyday US life, why haven’t they taken off to the same degree on this side of the pond? Retailers and issuers have yet to be convinced, believes Andrew Johnson, director general of the UKGCVA. He says: “There have been several discussions in the UK but until the benefits for retailers and issuers become apparent, there is reluctance in the market and until big companies back these sites, they won’t take off here.”
That hesitance was underlined recently during an episode of the BBC’s Dragons’ Den, where two would-be entrepreneurs hoping to develop and market their fledgling gift card exchange website sparked an intense debate between the Dragons over the commercial viability of such a business. In the end, all four Dragons (two of whom offer gift card services as part of their own businesses) bowed out of making an investment.
But despite the question of large-scale commerciality, consumer demand is slowly building momentum, with eBay UK listing hundreds of gift card sales at any one time and a small, but growing number of followers and exchanges appearing on those few existing UK sites.
However, before exchange sites can boom, there needs to be a constant flow of products that appeal to both ends of the exchange. The UK primary market is changing to accommodate once-specialist retailers diversifying their product range and broadening the appeal of their cards and vouchers, so is that required flow more likely to be a ‘when’ not ‘if’ scenario? And if that’s the case, gift card exchange sites may well one day become a part of our everyday lives.
One key challenge for any start-up site is how to detect and prevent fraud, a potentially very expensive yet essential step for any new entrant to the market. Fraud most commonly occurs when cards are purchased with illegally obtained funds, with the merchant only becoming aware of this sometime after the card has already been bought and then sold or exchanged onwards.
Realistically tackling this problem can only be achieved with the resources of large-scale investors, and again we return to the point that corporate buy-in depends upon a convincing business case first being made coherently by the SCGM.
There are two types of gift card exchange markets – disintermediated (direct exchanges made between two consumers, with the online exchange business taking a commission from that sale in the manner of eBay or Craig’s List) and intermediated, where the online business purchases the cards and resells them on.
The former model requires trust on the part of the buyer and the seller and, if the sale is fraudulent or goes wrong, it can lead to a poor consumer experience. The latter, however, is regulated by the business and comes with some kind of money-back guarantee attached, making the experience a much safer, more positive experience for the consumer and, in return, the gift card retailer.
This more regulated approach has encouraged US gift card retailers and issuers to see how they can benefit from the services offered by exchange websites – namely converting unused card value into sales and, in many cases, consumer overspend. Perhaps the Dragons would have been more willing to listen if the entrepreneurs in front of them had more heavyweight financial backing that would have provided a richer consumer experience?
If, in the case of so many things, the UK follows where the US leads, gift card exchange sites may well become big business in the not-too-distant future. But where will that leave secondary, and primary, gift card providers?
Probably asking themselves some serious questions about where they sit within this newly emerging sector and how or whether they need to get ahead of the competition and invest in developing the exchange market before their competitors steal a march on them and design the model to meet their own requirements first.
Plastic Jungle
One of the US’s major gift card exchange businesses is Plastic Jungle. Based in San Jose, California, the company gives consumers the option to save money with discounted gift cards up to 30% off, and buys unwanted gift cards for up to 92% of the unused balance. The company’s mission is to bring liquidity to the estimated $30 billion unredeemed gift card economy for the benefit of consumers, retailers, and other ecommerce companies.
Last year, Plastic Jungle revealed the results of an independent study examining the impact of gift card exchanges on retail brands and found that respondents said they have a more positive impression of retail brands when they are given the flexibility to either sell a brand’s gift card for cash or use it at another online retail store. Plastic Jungle believes this presents “… an opportunity for retailers to further strengthen the perception of their brand by enabling their gift cards to be quickly and safely shifted away from consumers… and into the hands of motivated consumers who have expressed purchase intent.”
CEO Bruce Bower is a staunt proponent of the SGCM and is currently in discussions with UK gift card retailers and issuers about how they can get the most from the SGCM.
He says: “People are being misgifted – gift cards are being presented to them that are not the best fit for their needs. But if consumers are given the ability to shop for the retailers they want to spend money with, you fulfil their demand and open up a better retail solution for everyone.”
Users of Plastic Jungle must log in to participate in any exchanges, meaning that the business knows who is buying and selling the available gift cards and therefore giving Plastic Jungle the opportunity to communicate relevant retail messages and offers to consumers, delivering a more meaningful experience that carries greater value for the consumer and the retailer.
“Everyone’s interest in the transaction is aligned – we can add value for the consumer and create incremental dollars for the retailer. It’s a win-win situation,” Bower adds.
Plastic Jungle has also unveiled two new payment products, which allow consumers to use gift cards to fund their purchases of goods and services on other websites. Facebook’s 500 million active users can now exchange gift cards for Facebook Credits via Plastic Jungle.
