Industry News

07/12/2009 - A new study revealed that businesses have yet another reason to add gift card payment processing to their merchant services - aside from being a popular gift item for the holidays, gift cards can help boost retailers' bottom lines thanks to the consumer spending behaviors they elicit.

Researchers from Iowa State University, Boston University and the University of British Columbia found that when 150 undergraduates from the University of South Carolina were given either US$20 in cash or a gift certificate worth US$20, the students who received the gift cards were more likely to spend more, accept higher prices, and violate their budgets, compared to those who were given cash.

"Basically, people are less price-sensitive when they pay with a gift card rather than cash, because cash is associated more with pain of paying," said Laura Smarandescu, assistant professor of marketing at Iowa State and co-author of the study. "Some gift card holders also don't end up using them, or they use them as partial payment on a more expensive item."

Thanks to this phenomenon, and the growing popularity of gift cards among consumers, an increasing number of Canadian businesses are offering gift card payment processing. The gift card market in Canada is estimated to be $6 billion, the Globe and Mail reported.