A First Data White Paper

2012 First Data Prepaid Employee Incentive Card Study

© 2012 First Data Corporation. All trademarks, service marks and trade names referenced in this material are the property of their respective owners.

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A First Data White Paper 2012 First Data Prepaid Employee Incentive Card Study

IntroductionIndustry research continues to depict a strong and growing consumer appetite for prepaid gift

cards. The Mercator Advisory Group, a trusted global advisor to the payments and banking

industries, conducted a recent study that revealed that the closed loop prepaid card market in the

United States increased from $262.4B in 2010 to $299.1B in 2011.1

Another 2012 study by the Incentive Research Foundation (IRF) shows that employees prefer prepaid gift or incentive cards over

other types of rewards, recognition or incentives from their employers. Of those surveyed, 44 percent said prepaid cards were

the best of all rewards types, while 27 percent said they liked them.2 Only 9 percent of employees surveyed called prepaid cards

“poor” rewards. The same IRF study showed that employers like giving prepaid cards because they are easier to administer than

other forms of incentives, employees like receiving them, and they offer good flexibility.

Despite this strong preference by both employers and employees, a 2012 study commissioned by First Data shows that corporate

purchases of prepaid gift or incentive cards actually decreased slightly in 2011—primarily because overall employee incentive

spending for companies with 100+ employees declined during that timeframe, resulting in a drop in prepaid incentive card sales

for corporate recognition and incentive programs.

This white paper reviews research findings on the corporate prepaid incentive card market, providing merchants with insights for

capturing a larger share of a slightly smaller market—and preparing for future increases in corporate spending.

The Employee Incentive Card MarketOn behalf of First Data, international research firm Burke surveyed businesses with more than 100 employees to gain a better

understanding of the current state of the

corporate incentive gift card market. The

study revealed a 28 percent decline in

annual employee incentive spending since

a similar study was conducted in 2010,

with average expenditures falling from

$317,300 in 2009 to $228,520 in 2011. The

distribution followed historic trends, with

cash and checks (27 percent of spending),

single-merchant prepaid cards (20

percent), multi-merchant prepaid cards (14

percent) and plaques, pins and logo wear

(14 percent) comprising the majority of

incentive spending. Merchandise, tickets,

reward points, travel, paper gift certificates

and discounts accounted for the remainder

of expenditures. (See Figure 1).

Figure 1

Share of Budget Spent on These Types of Employee Incentive

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A First Data White Paper 2012 First Data Prepaid Employee Incentive Card Study

In year-over-year terms, the volume of

single-merchant cards (i.e., “closed loop”

cards for specific merchants) purchased

for employee incentives showed a sharper

decline than multi-merchant cards (i.e.,

Visa, MasterCard, American Express,

Discover and similar “open loop” cards

that can be used at a variety of merchant

locations). However, single-merchant

prepaid gift or incentive cards

(55 percent) were still purchased in slightly

larger volumes than multi-merchant cards

(43 percent). The remaining 2 percent was

composed of virtual gift cards.

(See Figure 2).

Discount stores (25 percent of incentive

card spending), full service restaurants (13

percent), specialty restaurants (11 percent)

specialty stores (10 percent), fuel stores

(8 percent) movie theaters (6 percent) and supermarkets (6 percent) were the leading categories for single-merchant prepaid

incentive cards, consistent with spending distributions from previous years.

Reasons for Choosing Specific Merchants Despite losing a bit of ground to multi-merchant prepaid cards, single-merchant cards remain the top selling type of prepaid

card for corporate incentive, reward and recognition programs.

Purchasers identified a number of reasons for selecting a

particular merchant more frequently than others, including

employee preference (the most important criterion

for 38 percent of purchasers), physical proximity, past

ordering history and volume discounts. The survey showed

corporate purchasers tend to buy single-merchant prepaid

gift and incentive cards directly from the merchant store

location (57 percent) or headquarters (23 percent),

versus brokers (6 percent), incentive program providers (4

percent) or other sources (10 percent). While 50 percent

of purchasers buy single-merchant prepaid gift cards in

person, 38 percent buy them online and 12 percent order

them by phone. (See Figure 3). Online buyers cite time

savings (80 percent), convenience (77 percent), ability

to track orders (67 percent) and ability to view purchase

histories (61 percent) as motivators.

Figure 2

Share of Cards Given in 2011

Single Merchant Purchase Method

Figure 3

Order by Phone12%

Order by Online38%

Purchase in Person50%

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A First Data White Paper 2012 First Data Prepaid Employee Incentive Card Study

Card Denominations and Giving OccasionsA survey sponsored by First Data in 2010 of similar corporations showed an average denomination of $97 for single-merchant

prepaid incentive cards and $115 for multi-merchant cards. The 2012 study shows the average denomination for single-merchant

prepaid gift or incentive cards declined to $71, while multi-merchant cards fell to $110.

Reasons or occasions for giving prepaid gift or incentive cards changed little since the previous study in 2010. Recognition for

a job well done, service anniversaries, year-end holidays, sales incentives and achievement of health/wellness goals continue to

head the list. (See Figure 4). As for seasonality, December is the most popular month for employee gift card spending, followed

by June and March.

The Appeal of Volume DiscountsPurchasers of single-merchant prepaid cards cite volume discounts as a motivating factor in choosing particular brands or

merchants. Approximately 40 percent of those surveyed said volume discounts ranging from 10 percent to 19 percent would

provide a compelling reason to buy. Another 31 percent said discounts from 20-30 percent would be required to drive purchases,

while 16 percent said discounts from 1-9 percent would suffice. As might be expected, discount expectations tend to increase

with per-card dollar values and total order volumes. For example, 30 percent of purchasers expected no discount for $10 cards

and purchases of $100 or less. More than 40 percent of purchasers of $100 cards with average orders of $1,000 or more, however,

expected discounts of 10-20 percent.

Employee Gift Card Occasions

Figure 4

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A First Data White Paper 2012 First Data Prepaid Employee Incentive Card Study

Merchant Strategies Driving GrowthSales of prepaid cards for corporate reward, recognition and incentive programs in 2012 are expected to be similar to 2011 levels.

This trend appears to be linked to stagnant corporate incentive budgets and employee populations in some organizations, since

overall consumer demand for prepaid cards is not declining. In fact, broader market research indicates a growing consumer

appetite for prepaid gift and incentive cards. The findings regarding corporate purchasers point out that merchants providing

prepaid incentive cards should (a) develop strategies for capturing share in a temporarily flat market and (b) begin to put

strategies in place now for coming years, when corporate payrolls and budgets increase.

Strategies for increased share in 2012-13Target Marketing. While the study showed an average decline in prepaid gift card purchases, companies experiencing strong

profitability and growing employee populations are, in many cases, increasing their purchases. Targeting thriving and growing

companies with direct marketing efforts could yield positive results. Given that companies prefer to buy prepaid gift and

incentive cards from merchants within a convenient shopping distance allows merchants to further refine their targeting.

Frequent Buyers. Knowing who makes the most gift and incentive card purchases within each organization also can help

targeting efforts. In the Burke study conducted on behalf of First Data, the most common purchasers were Operations (32

percent), Sales (17 percent), Marketing (11 percent) and Human Resources (11 percent). “Other” (16 percent) and accounting,

customer services and training (13% combined) rounded out the identified purchasers.

Special Discounts. Research indicates that corporations are curtailing prepaid gift and incentive card purchases because of

economic challenges. It also seems that prepaid cards are competing with other reward, recognition and incentive tactics.

Offering “limited time” discounts that are slightly deeper than normal may persuade corporate buyers to choose your cards

instead of pursuing other options. This may lead to sustained follow-on business in the future, as purchasers tend to return to

merchants from whom they have already purchased prepaid gift or incentive cards.

Customized Offerings. Limited budgets put corporate purchasers in the position of having to be more selective. Adding new

value to your prepaid cards may be effective in generating new sales. For example, offering custom card printing or packaging

may make your cards enticing enough to overcome other non-card options.

Strategies for Success in a Future Growth MarketOnline Experience. One of the leading factors for buying decisions among corporate purchasers is online convenience. Other key

factors include online security and the ability to track purchase histories. Re-engineering your online prepaid gift and incentive

card offerings could generate incremental sales. Use this “soft” time in the market to reinvent and optimize the user experience

on your website.

Awareness Campaigns. Targeting corporations with 100+ employees within a 10- or 15-mile radius of your location(s) with

awareness messages could pay dividends when spending levels increase. Gaining mind share and awareness while companies

are in recovery mode can put you in front of other providers.

Educational Campaigns. Positioning your store or brand as a thought leader in reward, recognition and incentive strategies could

provide strong differentiation for your offerings. Blogs, Twitter campaigns or electronic newsletters can be used to communicate

insights to prospective customers. For example, you could create content and messaging regarding the types of cards and

packaging/presentation that best resonate with various demographic groups.

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A First Data White Paper 2012 First Data Prepaid Employee Incentive Card Study

About the StudyThe goal of a 2012 study conducted by Burke, Inc. on behalf of First Data was intended to provide information that helps

merchants understand their market for corporate incentive gift cards. The study reviews how gift cards are used, current and

intended spending levels of card spend, acquisition preferences and other key criteria. Approximately 300 interviews were

conducted online with decision makers in enterprises with 100+ employees in March and April 2012. Enterprises were selected

from a variety of vertical markets, including manufacturing, government, retail, technology, financial services, telecommunications,

healthcare, transportation, business services and insurance.

The Global Leader in Electronic CommerceAround the world every day, First Data makes payment transactions secure, fast and easy for merchants, financial

institutions and their customers. We leverage our unparalleled product portfolio and expertise to deliver processing

solutions that drive customer revenue and profitability. Whether the payment is by debit or credit, gift card, check or

mobile phone, online or at the point of sale, First Data helps you maximize value for your business.

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1 Mercator Advisory Group, 2012; Ninth Annual U.S. Closed-Loop Prepaid Card Market Assessment.

2 Incentive Research Foundation, 2012; It’s In the Cards: An In-Depth Look at PrePaid Cards in Incentive, Rewards & Recognition Programs.