Store gift card sales plummet as consumers flock to prepaid debit cards

Spending on private label store gift cards is projected to fall by 7% this year, as consumers tighten budgets in reaction to a weakened economy. Gift givers are also getting nervous about what retailers will have on the shelves after the holidays, as stores move to reduce inventory. General purpose prepaid debit cards are rapidly gaining favor as an alternative.

Research from financial advisory firm TowerGroup projects total gift card spending in 2009 will fall from $91 billion to $87 billion, the second straight yearly decline. Store gift card sales are projected to fall from $63 billion last year to $58 billion, while general purpose prepaid gift cards are projected to show a modest 3% increase to $29 billion from $28 billion last year. In fact, sales of general purpose prepaid gift cards, such as Mastercard or Visa prepaid debit cards, have increased the last five years in a row. Gift cards are a subset of the growing prepaid debit card business.