Bank Gift Cards Enable Financial Institutions to Compete with Retailers' Programs

Bank-branded gift cards are emerging as both popular presents for gift givers and satisfied customers for banks. Large banks such as Wells Fargo and U.S. Bank launched prepaid cards in 2003. This year, smaller banks have gotten in on the action, as well. The surge in gift cards' popularity provides banks with a reason to compete with more traditional retailer gift cards, gift industry analysts are reporting.

Deluxe Financial Services introduced its Visa gift card program in the fall of 2004, by offering banks, credit unions and larger financial institutions with the gift-card service so those institutions don't have to pay for the costly infrastructure necessary to launch their own program.

Even though gift cards only generate a small monetary benefit for banks per card, customer loyalty and customer service appear to be compelling reasons to carry the new product. Also larger financial institutions turn a significant profit on the cards, mostly because of the sheer number sold. Charges average around $4.95 per card, and the card's remaining balance is subject to a service or inactivity fee after six or 12 months.