Gift Cards

Merchant Warehouse |

January 15, 2013

Gift cards offer consumers an easy way to give others the power to spend at popular retailers. While gift cards are not a form of currency in the traditional sense, they can be used much like an in-store credit. Demand for these cards has risen significantly since the mid-1990s thanks to their appeal to a wide variety of consumers. True to their name, these cards are often used as gifts. However, there are no restrictions as to who can use a gift card once it is purchased. Individuals may purchase gift cards for themselves in an effort to control spending or stick to a budget.

Gift Card Basics

The Federal Trade Commission notes that there are two basics types of gift cards. These are retailer-issued and bank-issued cards. Both types of gift cards are widely available in the U.S. and in some European markets. In the U.S., these cards are regulated by the FTC and the Federal Reserve. Retailer-issued gift cards are those cards that are sold by a given retailer or company. They can be used for the purchase of goods or services in a physical retail location or online. Gift cards are good for a certain amount of money, but consumers can combine cash and gift cards if they wish to buy something that costs more than the value of the gift card. Most retailers also allow consumers to combine gift cards. Some restaurants offer such cards to customers. Many retailers also offer virtual gift cards. These cards are sent to the recipient in the form of a redemption code in an email. They can only be used for online purchases. In many cases, virtual gift cards are used by last-minute gift givers or individuals who want to send a present to someone overseas. Bank-issued gift cards are offered by individual banks or major companies such as Visa, MasterCard and Discover. They are sold for a set monetary value and can be used at retail shops, restaurants, service establishments and to make purchases online. These types of gift cards are sometimes known as pre-paid debit cards, although they generally do not allow recipients to withdraw cash at an ATM. They are sometimes used by travelers in place of traveler's checks.

Gift Card Terms

In response to concerns raised by consumer advocacy groups, the FTC has put a number of regulations in place for gift cards. All cards offered by retailers and most bank-issued cards must be good for at least five years after their purchase. This means that consumers have plenty of time to use the card. Any fees that are connected to gift cards must also be clearly disclosed on the gift card packaging at the time of purchase. Many bank-issued cards carry fees. Retailers may also charge fees if a gift card isn't used for a year. While gift cards have become a popular choice for many consumers, experts argue about the overall redemption rate for these cards. Not every gift card that is purchased will be redeemed. It is estimated that about 20 percent of all gift cards purchased will never be used. No federal regulations govern unused gift cards, meaning that retailers and banks gain a straight profit from every gift card that is sold but never redeemed.