According to this obvious PR-based article, prepaid debit and gift cards are already a huge hit for online purchases ($12 billion for prepaid and $2 billion for gift cards in 2009) and are set to explode to $38 billion for prepaids and $6 billion for gift cards by 2014, representing almost 10% of online sales.

What is obviously missing from this is the difficulty people often have in using these types of cards for online purchases. Having briefly run a service that cashes out open-loop gift cards, I can personally attest to the fact that these type of cards are all over the board as to how they behave (or misbehave) online, even as far as major differences between two cards issued from the same bank. From differing and sometimes totally random address verification handling to holds placed on funds after a failed authorization (because of AVS randomness) sometimes for weeks, these cards are hell to try and use online. In a store, all you have to do is swipe the card, no verification required. Online, you sometimes have to know precisely what address (if any) the card is registered to, which could be none, the gift givers address, or your own if you registered it, and other times the card doesn’t care about addresses. Some cards done care about address verification until you register them. Some cards just randomly stop working for no reason and you can’t get a hold of a real person to figure out WTF.

The bottom line is that easily over 50% of online transaction based on gift cards seem to fail, versus about 5% for traditional credit cards.