Here's Why Millennials Are Buying Gift Cards for Themselves

Young folks have found a new use for refillable gift cards. They are buying them for themselves.

A new report issued this week by analyst firm Mercator Advisory Group found a big jump in purchase of these “retailer-specific” cards among millennials.

“Nearly 3-in-5 young adult respondents indicated they bought them during the previous year, up from less than half of young adults who did so in the 2015 survey,” the report said.

The intermingling of these gift cards and apps seems to be behind the trend.

Increases in overall retail refillable gift card sales were particularly sharp in the 18- to 24-year-old age range, which saw an increase from 44% to 53%; and among those ages 25 to 34, which jumped from 48% to 57%. The rise is even more dramatic when a three-year trend is considered — among the 18- to 34-year-old set, the jump was from 39% to 57% from 2013 to 2016. During that same stretch, gift card sales actually dropped among those over age 65, and were nearly flat for 35- to 64-year-olds.

Why the increase among young people? Gift cards aren’t just for gifts anymore. Young folks are loading gift cards onto retailer apps, and using the money on themselves, said report author Karen Augustine.

“Retailers are introducing more mobile-based apps and offers when using their loyalty and prepaid programs, which may be fueling this growth in retailer gift card purchases,” Augustine said. “Young adults continue to lead this mobile revolution and growing use of prepaid cards as a money management tool.”

The Starbucks Effect

Starbucks continues to lead the way with its coffee cash app, which is little more than a gift-card management tool with a quirky loyalty program sprinkled on top. Still, the Starbucks app is a raging success. About $1.2 billion of customer cash is now loaded on the app/gift card tool, which means Starbucks holds more cash than some banks. About one-quarter of all transactions at U.S. Starbucks stores is now conducted via app. That serves customer loyalty, and it also saves Starbucks a killing on credit card transaction fees.

Meanwhile, the Starbucks app offers a huge advantage to busy young adults — those who pay via the app can skip to the end of the line, pick up their drink, and go.

“I believe that millennials are taking advantage of the plethora of mobile apps that retailers have introduced that support their prepaid cards, and they start using more prepaid cards in general for their own use,” Augustine told me via email. “We see more prepaid cards being bought for personal use, not just for gifts.”

Other retailers, like coffee competitor Dunkin’ Donuts, have noticed Starbucks’ success, and now allow consumers to store value via gift cards on their own apps — a feature sometimes called “digitized stored value.”

“The discount retailers are doing well in this space, despite their late entry,” Augustine said. “Dunkin’ is a regional brand that we do track, but national fast food chains are popular, too.”

Plenty of Room to Grow

On the other hand, a Forrester report issued last year suggests there’s plenty of room for retail-specific apps to grow. It found that 60% of consumers who use a smartphone to shop online have fewer than two retailer-specific apps on their phone; and only 18% of app users have used that app to store gift card value.

While plenty of store apps let users check gift card balances, or even buy and send gift cards, a study by RSR Research called the Digital Gifting Benchmark Study found that few popular apps complete the cycle and let consumers store and spend money via the app.

“Too many retailers still offer no option to buy gift cards via mobile web or app,” the report said. Only 12 out of 100 retailers studied allowed consumers to load a gift card into their app.

The study showed Sephora, Starbucks, Dunkin’ Donuts, Home Depot, and Amazon as the retailers with the best digital gift card experience.

Prepaid refillable gift cards can be a great way to gift people, not just yourself, but they won’t help if you need to improve your credit scores as cardholder use is not typically reported to the credit reporting agencies.

If you’re looking to build credit but don’t think you’ll qualify for a traditional credit card, you may want to consider a secured credit card, which requires a cash collateral deposit that serves as a credit line for the account. (You can see where your credit currently stands by viewing your two free credit scores each month on Credit.com.)

Image: Geber86