The Digital vs. Physical Gift Card Dilemma: Striking the Right Balance for Your Business

Gift Card Market Size

Gift cards have become a cornerstone of the global payments and gifting landscape, offering unparalleled flexibility and convenience for consumers and businesses alike.

The market has grown substantially in recent years, driven by the digitalization of payments, rise of e-commerce, and a growing preference for personalized gifting options. As more industries integrate gift cards into their sales strategies, their market size has expanded, reflecting increased adoption across retail, corporate, and digital sectors.

Based on a consensus of five market research sources—Precedence Research, Coherent, Research and Markets, Reloadly, and Credence—the global gift card market is projected to experience robust growth. Starting at $976.8 billion in 2023, the market is forecasted to grow at a compound annual growth rate (CAGR) of 16%, reaching $4.34 trillion by 2033. This trajectory highlights the immense potential of the gift card industry to reshape consumer spending patterns and payment ecosystems over the next decade.

Analysis of Market Size Growth

• Consistent Growth Across Forecast Periods:

  • The consensus data illustrates a steady increase in market size, from $976.77 billion in 2023 to $2.52 trillion by 2030, culminating at $4.34 trillion by 2033.

  • The CAGR of 16% reflects the resilience of the gift card market amid evolving consumer preferences and the global shift toward digital and contactless payments.

• Key Milestones:

  • The market is expected to surpass the $1 trillion mark in 2024, signifying growing penetration and adoption among businesses and consumers.

  • By 2030, the market will double its size from the mid-decade estimate, reaching $2.52 trillion, driven by expanding use cases and regional adoption.

• Major Drivers of Growth:

  • The rise of digital wallets and mobile payment platforms has integrated gift cards into digital ecosystems, making them more accessible and versatile.

  • Corporate adoption for employee rewards and promotional campaigns continues to fuel demand.

  • E-commerce has amplified the need for digital gift cards, offering convenience and speed for last-minute purchases.

Gift Cards Demographics

Gift Card Purchasing Trends by Generation During the 2024 Holiday Season

In the 2024 holiday season, consumer behavior in the United States showed distinct generational differences in the likelihood of purchasing or giving gift cards as gifts. Overall, 38% of US consumers expressed a preference for gift cards as holiday gifts. Gen Z led the trend, with nearly half (49%) indicating a strong inclination toward buying or gifting gift cards. Millennials followed closely, with 42% adopting this gifting option. Gen X consumers were moderately likely to choose gift cards, with 35% participation, while Baby Boomers demonstrated the lowest engagement in this trend at 31%. This data highlights the growing appeal of gift cards among younger generations, particularly as a convenient and versatile gifting solution.

The Digital vs Non-digital Dilemma

Digital vs Non-Digital Market Share

According to our research, based on data from Fiserv, GCVA, and KPMG, the average market share of Digital Gift Cards is 49%, while Physical Gift Cards account for 51%. This balance highlights how both options hold strong appeal, catering to different consumer preferences and needs. However, each type of gift card comes with distinct advantages and disadvantages:

Digital Gift Cards

Advantages:

1. Convenience and Instant Delivery: Can be purchased and delivered instantly, making them ideal for last-minute gifts.

2. Eco-Friendly: No physical materials are required, reducing the environmental footprint.

3. Customizability: Often allow for personalized messages, designs, or animations.

4. Ease of Use: Can be redeemed online or in-store using mobile devices.

5. Global Reach: Can be sent to recipients anywhere in the world without shipping concerns.

Disadvantages:

1. Easy to Forget: Digital cards can be lost in an email inbox or forgotten amidst other digital clutter.

2. Security Risks: Susceptible to fraud or hacking if not properly managed.

3. Limited Access: Older or less tech-savvy users may struggle with digital platforms.

4. Dependency on Technology: Requires access to email or apps to redeem.

Physical Gift Cards

Advantages:

1. Tangible and Memorable: Provides a physical experience that feels more like a "real" gift.

2. Widely Accepted: Often usable in a broader range of locations, including physical stores and restaurants.

3. Easier to Track: Harder to lose compared to a digital card buried in an email inbox.

4. No Technology Barrier: Accessible to all demographics, including those less familiar with digital tools.

Disadvantages:

1. Inconvenience to Purchase and Deliver: Requires physical delivery, which can take time and incur shipping costs.

2. Environmental Impact: Requires materials like plastic, which may not be eco-friendly.

3. Risk of Loss or Damage: Can be physically lost or damaged, rendering them unusable.

4. Limited Flexibility: May lack the convenience of features like online balance checks or mobile wallets.

Both types of gift cards appeal to specific use cases and demographics. Businesses should consider offering both options to maximize their reach, balancing the convenience of digital formats with the tangible appeal of physical cards.

Digital vs Non-Digital Gift Card Market Value Triangulation

Assuming constant Market Share rates for both types, based on previous consensus, we are allowed to expect a Digital Gift Cards Market Value of ~$2,111 billion, by 2032, growing at a CAGR of 16%; and a Physical Gift Cards Market Value of ~$2,227 billion, by 2032, growing at a same rate.

In another scenario, assuming the Digital segment gaining market share constantly during the forecast period, driven by digitalization and remote work rewards and awards programs, we can expect a Digital Gift Cards Market value, over passing ~$2,500 billion by 2032 and growing at a CAGR of ~18%. While in this scenario we can expect a Physical Gift Cards Market value reaching ~$1,837 billion by 2032, registering a CAGR of ~14%.

Assuming the Digital Market Share growth rates as linear, on a +1%  per year basis, we can expect a ~$390 billion difference between the Bullish and constant scenario for Digital Gift Cards Market, and the same (or similar) difference between the Bearish and constant scenario for the Physical segment.

Digital vs Non-Digital Gift Card Redemption Time

The data reveals a consistent trend where non-digital gift cards (physical cards) outperform digital gift cards in terms of redemption rates across all time periods (45, 90, 135, and 180 days). For example, in 2022, 47% of e-gift cards were redeemed within 135 days compared to 54.85% for physical cards, a clear margin in favor of physical formats. This trend persists across multiple years, suggesting that consumers tend to redeem physical gift cards more reliably.

One reason for this difference could be the visibility and tangibility of physical gift cards, which are harder to forget compared to digital cards often buried in an email inbox. Physical cards are also more commonly used in specific industries like fine-dining restaurants, where the tradition of presenting a card physically aligns with customer expectations. Conversely, digital gift cards, while convenient for instant delivery, may suffer from being overlooked, lost in digital clutter, or perceived as fewer tangible reminders for spending.

This data underscores the need for businesses to consider their audience's preferences and habits when designing gift card programs, leveraging digital formats for convenience and physical cards for industries or demographics that value tangibility and higher redemption rates.