A gift card also
known as gift certificate in North America, or gift
voucher or gift token in the UK [1] is a prepaid stored-value money card, usually issued by
a retailer or bank,
to be used as an alternative to cash for purchases within a particular store or
related businesses. Gift cards are also given out by employers or organizations
as rewards or gifts. They may also be distributed by retailers and marketers as
part of a promotion strategy, to entice the recipient to come in or return to
the store, and at times such cards are called cash cards. Gift
cards are generally redeemable only for purchases at the relevant retail
premises and cannot be cashed out, and in some situations may be subject to an
expiry date or fees. American Express, MasterCard, and Visa offer generic gift cards which need
not be redeemed at particular stores, and which are widely used for cashbackmarketing
strategies. A feature of these cards is that they are generally anonymous and
are disposed of when the stored value on a card is exhausted.
From the purchaser's
point of view, a gift card is a gift,
given in place of an object which the recipient may not need, when the giving
of cash as a present may be regarded as socially inappropriate. In the United States, gift cards are highly popular,
ranking in 2006 as the second-most given gift by consumers, the most-wanted
gift by women, and the third-most wanted by males. Gift cards have become
increasingly popular as they relieve the donor of selecting a specific gift.In
2012, nearly 50% of all US consumers claimed to have purchased a gift card as a
present during the holiday season. In Canada, $1.8 billion was spent on
gift cards, and in the UK it is estimated to have reached £3 billion in 2009, whereas
in the United States about US$80 billion was paid for gift cards in 2006. The
recipient of a gift card can use it at their discretion within the restrictions
set by the issue, for example as to validity period and businesses that accept
a particular card.
History
Neiman Marcus introduced the first gift card using a payments infrastructure in late 1994, though Blockbuster Entertainment was the first
company to do so on a wide scale test-marketing them in 1995 and launching them
around the country the next year. In the beginning, the Blockbuster giftcard
replaced gift certificates that were being counterfeited with recently
introduced color copiers and color printers. Blockbuster's first gift card transactions were processed by what was then Nabanco of Sunrise, Florida Nabanco was the
developer of the first third-party platform for the processing of gift cards
using existing payment infrastructure.
Neiman Marcus and
Blockbuster were later followed by the Mobil gas
card, which initially offered prepaid phone value provided by MCI. Kmart was
next with the introduction of the Kmart Cash Card, which in the early
generations provided prepaid phone time with AT&T. Later Kmart and Mobil dropped this
feature, as it was not profitable for them. The Kmart Mags Pangilinan Cash Card
was the first replacement for cash returns when a shopper did not have a receipt
for a gift. This practice of giving a cash card in place of cash for
non-receipted returns is commonplace today with most merchants. From these
early introductions, other retailers began to adapt a giftcard program to
replace their gift certificate programs.
Function and types
An
assortment of gift cards, many from U.S. national retailers such as Best Buy, Target,
and Home Depot.
A gift card may resemble
a credit card or display a specific theme
on a plastic card the size of a credit card. The card is identified by a
specific number or code, not usually with an individual name, and thus could be
used by anybody. They are backed by an on-line electronic system for
authorization. Some gift cards can be reloaded by payment and can be used thus
multiple times.
Cards may have a barcode or magnetic strip, which is read by an electronic
credit card machine. Many cards have no value until they are sold, at which
time the cashier enters the amount which the customer wishes to put on the
card. This amount is rarely stored on the card but is instead noted in the
store's database, which is cross linked to the card ID. Gift cards thus are
generally not stored-value cards as
used in many public transport systems or library photocopiers, where a
simplified system with no network stores the value only on the card itself. To
thwart counterfeiting, the data is encrypted. The magnetic strip is also often
placed differently than on credit cards, so they cannot be read or written with
standard equipment. Other gift cards may have a set value and need to be
activated by calling a specific number.
Gift cards can also be
custom-tailored to meet specific needs. By adding a custom message or name on
the front of the card, it can make for an individualized gift or incentive to
an employee to show how greatly they are appreciated.
Gift cards are divided
into open loop or network cards and closed loop cards. The former are issued by
banks or credit card companies and can be redeemed by different establishments,
the latter by a specific store or restaurant and can be only redeemed by the
issuing provider. The latter, however, tend to have fewer problems with card
value decay and fees.[8] In either case the
giver would buy the gift card and may have to pay an additional purchase or
activation fee, and the recipient of the card would use the value of the card
at a later transaction. A third form is the hybrid closed loop card whose
issuer has bundled a number of closed loop cards; an example is free gift cards
for a specific shopping mall.
Gift cards differ
from scrip gift certificates, in that the
latter are usually sold as a paper document with an authorized signature by a
restaurant, store, or other individual establishment as a voucher for a future service; there is no
electronic authorization. A gift certificate may or may not have an expiration
date and generally has no administrative fees.
Bank issued gift cards
may be used in lieu of checks as a way to disburse rebate funds.
Some retailers use the gift card system for refunds in lieu of cash thereby
assuring that the customer will spend the funds at their store.
A charity gift card allows the gift giver
to make a charitable donation and the gift recipient to choose a charity that
will receive the donation.
Mobile and virtual gift cards
An app store gift card display in a shop.
Mobile gift cards are
delivered to mobile phones via email or SMS,
and phone apps allow users to carry only their cell phone. Benefits include
tying them to a particular phone number and ease of distribution.
Virtual gift cards are
delivered via email to the recipient, the benefits being that they cannot be
lost and that the consumer does not have to drive to the brick and mortar
location to purchase a gift card.
Other companies have
introduced virtual gift cards that users redeem on their smartphones. As the
merchant is not involved in the loop, it is considered a cash transfer rather
than a traditional gift card.
Pitfalls
It has been argued that
holiday giving destroys value due to mismatching gifts.The most efficient
way to keep value in gifting would be to give cash; however, this is socially
acceptable only within limits. Gift cards, to a degree, may overcome this
problem but have certain pitfalls. Some feel that the absence of the thought of
selecting a specific gift makes a gift card a worse choice than a poorly
executed but individual gift New products in the gift card industry are
evolving to tackle this "impersonal" pitfall of gift cards; new
services launched by some service providers allows for customization and
personalization of gift cards.
Gift cards have been
criticized for the issuers ability to set rules that are detrimental to the
purchaser or card recipient. For example, gift cards may be subject to an
expiry date, administrative fees, restrictions on use, and absence of adequate
protection in case of fraud or loss. Over time fees may render the value of a
gift card zero. However, these issues have been addressed in recent years in
some jurisdictions. In the United States, many jurisdictions limit or
prohibit all fees or expiration dates for gift cards. Furthermore, because of
the negative impact on sales that such policies can have, most merchants have
adopted and even advertise a no fee, no expiration policy for their gift cards,
whether or not state laws require it. In 2011, an estimated 2.5% of gift cards
were subject to an expiration date and 2.7% to post sale fees.
A quarter of gift card
recipients still have not spent gift cards a year after receiving them,
according to a Consumer Reports survey,
and a majority of people say they end up spending more than the value of the
card once they get to the store.
In the event of the
bankruptcy of the issuing retailer, the outstanding value on gift cards is
considered unsecured debt,
and as such gift cards may become valueless. If the company intends to continue
trading, gift cards may be honoured even in bankruptcy.
Another issue regarding
gift cards is the growing concerns from retailers and other businesses about
what can be done to prevent gift cards from being exploited by fraudsters. Gift
card information can either be stolen from their rightful owners by fraudsters
or they can be purchased with stolen credit card information. In recent years,
cyber criminals have increased their efforts to take advantage of fraudulent
gift cards as they are simple to exploit with automated brute-force bot
attacks. The most common form of gift card fraud is committed through the
act of stealing card information for activated cards with an existing balance
by attacking a retailer's systems which store gift card data. Once a gift card
has been compromised, the fraudster will then check the balance through online
customer portals before using the funds or reselling on the secondary gift card
market.
Redemption rate
Main article: Breakage
Not all gift cards are
redeemed. The card may be lost, there may be time decay expiration and fees or
complex rules of redemption, or the recipient may not be interested in the
store that accepts the card or be under the false assumption that not using it
will save money for the giver. It has been estimated that perhaps 10% of cards
are not redeemed, amounting to a gain for retailers of about $8 billion in the
United States in 2006.
In 2012, over $100
billion in gift cards will be purchased in the United States, where over 20% of
those gift cards will go unredeemed or unused. This has amassed a large opportunity
in the secondary market, similar to the secondary ticket market in the early
2000s. Some companies have created a business in the secondary gift card market
that allow consumers to sell their unused gift cards or buy discounted gift
cards to their favorite brands. This has helped their users recoup their share
of some $55 million per day that goes unredeemed in the United States every
year, by turning their unused gift cards into cash.
Regulations
Canada
All Canadian provinces
have legislation passed to ban expiry dates and fees collected on gift cards.[16] However, provincial
gift card legislations do not apply to sectors that are regulated under federal
laws. For example, gift cards that resemble credit cards i.e. with American
Express, MasterCard, or Visa branding and phone cards are regulated by the
federal government. Under the federal Prepaid Payment Products
Regulations, effective 1 May 2014, federally regulated gift cards may only
charge maintenance fees under certain conditions and may not set an expiry date
for funds on those cards.
United States
In the past, uniform
standards concerning gift cards did not exist. This was set to change as an
addendum to the Credit CARD Act of
2009 directs the federal government to create consumer-friendly
standards pertaining to gift cards. Most notably, the new regulations
prohibit retailers from setting expiration dates unless they are at least 5
years after the card's date of issue or the date on which funds were last added
to the card. In addition, retailers are no longer able to assess dormancy,
inactivity, or service fees unless the card has been inactive for at least 12
months, and if fees are added after that period, the details of such fees must
be clearly disclosed on the card. Additionally, retailers are unable to levy
more than one fee per month. The new provisions took effect on 22 August 2010.
Open loop cards are
governed by rules of the Comptroller of
the Currency; however, oversight has been criticized. Closed
loop gift cards are subject to rules set by different state regulations, and
issuing authorities vary widely in the rules they set for the consumer. Moreover,
rules can be changed by the issuer without notifying the consumer.
See also
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