Bank-issued gift cards: an upcoming trend?

There may be a bright future for the bank-issued gift card, according to TowerGroup, the financial services research company in Needham, Mass. Prepaid gift cards were a hot retail product during the 2003 holiday season. In fact, these cards accounted for 8 percent of all retail sales!

Conceived just seven years ago, these cards were until recently used mainly by retailers seeking to bolster customer loyalty and increase sales. But now financial institutions are introducing their own gift card products, offering additional features and security--and the advantage of widespread card acceptance through the leverage of brand names such as Visa, MasterCard, American Express and Discover.

Gift cards have taken their lumps recently because of media coverage concerning the high associated fees. TowerGroup, however, notes that the media and government officials have failed to differentiate between retail and bank-issued gift cards, and they are two different products.

The research company has issued a new report arguing that these products have good potential for banks. www.towergroup.com