inancial services industry research and advisory firm TowerGroup released a report in February 2005 on the recent but increasingly popular practice of gift card swapping and the Web sites that facilitate the trading and selling of the cards.

The research note titled "Trading Places: Parsing the Benefits and Risks of Online Merchant Gift Card Auctions," written by Senior Analyst Edward Kountz, looks at the rise of online gift card trading sites and covers their still small but growing role in the prepaid and stored value industry.

Covered in the report are such topics as recommendations that Kountz makes to merchants, vendors and trading posts; benefits that card swapping brings to merchants; and problematic issues the trading posts bring up, including fraud. Overall, the report sheds a positive light on gift card swapping.

Gift cards are touted as the ideal gift, but considering that consumers do not redeem 12% - 14% of all merchant cards it seems that sometimes one size does not fit all. Because most retailers don't count the revenue from gift card sales until customers redeem them, that's a considerable amount of lost income.

Online swapping sites work in a variety of ways, but they all let consumers buy or bid on merchant cards that suit their needs. TowerGroup estimated that the value of cards now available on the sites to be $279,000, or less than 0.001% of all gift cards sold in 2004. As with other online auction or e-commerce sites, Kountz urges caution.

Buyers beware because there is always the danger that what they think they're buying isn't really what they get.

Strong, standard anti-fraud provisions to protect consumers and steps to prevent money laundering are also necessary if card swapping continues to show strong growth.

The TowerGroup report recommends cooperation between merchants, gift card providers and the online trading posts to ensure that over the long term, the positive impacts this new market has on the industry will keep outweighing the negatives.