The debate continues over paper vouchers versus electronic cards as technological growth offers more reward options, says David Woods
Technological advances in recent years have helped transform the motivation voucher market which, historically, has not been the most innovative on the product development front.
The introduction of electronic motivation gift or pre-pay debit cards and online voucher systems reflects the societal trends towards shopping online and paying for goods by card. Andrew Johnson, director general of industry body The VA, explains: “As a nation, we are using cash less and less. We are using plastic and purchasing things over the internet.”
Over the past few years, providers have reported a rise in the use of electronic motivation cards, which enable employers to add a cash value at their discretion for staff to spend on goods in retail outlets or online. According to Jonathan Haskell, chief executive officer at Michael C Fina, paper vouchers are now being phased out in favour of cards. “[Paper] vouchers do not provide as much retail choice as cards, they are very expensive for the end user, they are complicated to administer and some stores will preclude people from using vouchers to pay for some items. As a result, on average, only 85% of paper vouchers are redeemed,” he explains.
Sean Wilkinson, managing director of motivation card provider Corporate Rewards, adds that electronic gift cards, which are usually redeemed in one or more selected retailers, can be easily stored in an employee’s pocket or wallet, and can be branded with a company’s logo. This may make it easier for staff to remember that they have vouchers to spend when out shopping.
Employers can also make use of tracking systems, which enable them to monitor the path of the cash credited to staff on the card, in order to gain an insight into their spending habits. This information can then be used to shape future motivation schemes.
“The main reason for the rise of cards is tracking. They can be backed up to a website. Vouchers just get shoved in people’s drawers and cannot be tracked as easily. When you allocate cards to people, the measurement and reporting is a lot higher and keener,” says Wilkinson.
Pre-paid debit cards
The past couple of years have also seen the launch of pre-paid debit cards. These can be loaded with credit which employees can spend at retail outlets that accept payment by the provider’s chosen network such as Visa or Mastercard, although they cannot be redeemed at an ATM machine.
In the last year, these pre-paid debit cards, such as P&MM’s Spree card, which operates through the Visa Network and Grass Roots’ grgCard, which can be used at any store accepting Maestro, have seen huge growth.
However, not all providers believe that being able to redeem credit in such a wide range of stores is a good idea. Alternatively, employers can use electronic gift cards which can only be redeemed through a limited range of retailers to ensure staff do not spend the money on everyday items and so treat themselves to luxury goods.
Tony Bates, incentives and payment services director at Grass Roots, says: “While [pre-paid debit] cards have seen a big growth, reward [should be] more about staff getting something they wouldn’t ordinarily buy.”
Not surprisingly, however, there is still some debate around how the development of electronic voucher systems will affect paper-based products. Providers in the market are not moving away from the latter just yet, and are reporting that there is still a high demand for paper vouchers. Dave Flemming, national accounts manager at Kingfisher Gift Vouchers, says: “I can’t see paper vouchers ever disappearing because the demand for them is there and it is increasing.”
He argues that because vouchers have a value printed on them, they can be more user friendly for employees. “With some plastic gift cards, there is no value printed on them so if the receipt with the value is lost, the user will not know how much their card is worth,” he explains.
Paper vouchers are also being developed to take advantage of technological advances so that they can continue to compete with electronic voucher systems. Catherine Forrest, business incentives manager at House of Fraser Business Incentives, explains: “In the business-to-business market, [the] demand for paper vouchers is strong and there are no telling signs that this will decline. Vouchers will be able to be redeemed online. They are keeping up with technology to make sure that they are not forgotten.”
She adds that paper vouchers, which can be used in a single store or at a limited number of retailers, can make it easier for employers to negotiate discounts with these outlets.”It’s not as practical negotiating this discount when it involves many retailers,” explains Forrest.
Looking to the future, there is currently some uncertainty as to whether or not paper motivation vouchers will weather the technological storm. “In the next ten years or so, cards could take over from vouchers. But there may be quite a few years to come before we see the death of paper,” says Bates.
In the long term, technological developments may result in employers moving away from the traditional methods of providing gift cards or vouchers with a cash value to staff, and instead using codes employees can use to gain discounts on products online.
Employers are already negotiating discounts for staff with online retailers, such as Amazon, either directly or by using a third-party provider to do so on their behalf, such as Grass Roots and P&MM. Staff can claim the discount when they reach the check-out page of a website, where they will be able to enter the code they have been sent. The site will then calculate the discount. However, the code will only be valid for staff to use within a pre-defined period.
The use of mobile phone technology is also being explored. An image of a barcode can be sent to an employee by text message, which can then be scanned in at a retail outlet in order for an employee to receive a discount. “This method of reward is being used in Scandinavia, where the market is more advanced than the UK. Trials are underway in the UK, but mobile phone technology is holding it up,” explains The VA’s Johnson.
Focus on facts
What are motivation vouchers?
Motivation vouchers are either paper-based certificates or electronic cards with a cash value, which are awarded to staff to use at their discretion at retail stores or online. They are given out by employers as an incentive to motivate staff.
What are the origins of motivation vouchers?
Motivation vouchers date back to the early 1970s when they were introduced as an alternative to giving staff cash incentives.
Where can employers get more information and advice about motivation vouchers?
Employers can get more information from industry body The VA (visit www.the-va.co.uk), which can provide information about providers and the different types of vouchers in the market.
Nuts and bolts
What is the annual spend on motivation vouchers?
According to figures from The VA, the annual spend on corporate use of motivation vouchers was around £1.7bn in 2006. This is up from £1.5bn in 2005 and accounts for around 45% of the market.
Which providers have the biggest market share?
High street retailers, such as Marks & Spencer and Sainsbury’s, are thought to be the largest supplier of single-store vouchers for employer use.
Grass Roots, P&MM, Capital Incentives and Motivation, and Kingfisher Gift Vouchers are some of the major players in the multi-store market.
Which providers have increased their market share the most over the past year?
According to The VA, retailers such as John Lewis and Asda have made notable increases in their market share in the last 12 months.
What are the costs involved? If employers purchase vouchers directly from retailers, they should only pay the value of the voucher. Some retailers will offer a discount on the value of the vouchers if employers are buying in bulk. Employers that use third-party agencies to purchase vouchers will be liable to pay management fees for their services.
What are the tax issues?
Motivation vouchers are taxed as a benefit in kind, so are subject to tax and national insurance (NI). Employers will often pay the employee’s NI contributions so they can enjoy the full value of the perk.
What are the legal implications?
There are no direct legal implications.