Gift Card and How it Works | What is Gift Card Used For

Gift card is not a thing for everyone, you must have heard about them in different places. A gift card, also known as a gift certificate in North America, or gift voucher or gift token in the UK, 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. See GameStop Gift Card.

American Express, MasterCard, and Visa offer generic gift cards which need not be redeemed at particular stores, and which are widely used for cashback marketing 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.

What is a Gift Card?

A gift card voucher is a prepaid debit card loaded with a particular amount of money, and it is used in place of cash or a bank debit card to make payment for goods and services. 

Gift cards come in two forms- a physical plastic card and an Ecode, also known as Egift and Digital gift cards. An ecode is an electronic gift voucher bought online. When you purchase an Ecode online, it is sent to your email provided.

Gift cards can be bought for personal use, but they are usually gifted out. For more than ten years, gift cards have been in high demand during the holiday season.

As we are approaching the Christmas holidays, it is the best time to look into gift cards and the multiple ways you can use them.

How a Gift Card Works

Gift cards are a form of prepaid debit card that is loaded with funds for future use. There are generally two types of gift cards: open loop and closed loop. Both types typically can be used online and in person.

Many gift cards will have a minimum and maximum initial loading amount. For example, there may be a minimum of $10 and a maximum of $500.

In some situations, gift cards can be used to pay for a portion of a purchase, with cash, debit or credit used to balance the expense.

As a precaution to mitigate the risk of losses, many gift cards can also be registered online—a procedure that allows the remaining balance to be tracked and frozen if a card is lost. In this way, some gift cards are safer than cash.

Depending on the card in question, a reload fee may apply to add money each time.

Closed-Loop Gift Cards

Closed-loop gift cards are often marketed by stores, allowing a cardholder to purchase anything from that specified retailer. Closed-loop cards generally can be used only with a single merchant, either at the store or on its website. 

However, if one company owns several different retailers, it might issue gift cards that can be used at any of them. Gap Inc. (GPS) is one such corporation: Its cards usually can be used interchangeably at any of its affiliated stores, including Gap, Banana Republic, Old Navy, and Athleta.

Closed-loop gift cards usually will not require any activation fees. Also, these gift cards will not include a processor’s logo (the financial services company that actually handles the transaction mechanics), though they do include the merchant’s logo; in a sense, they act as advertising for the store.

Closed-loop gift cards usually are not reloadable, so once the balance is spent, they have no further use. Also, funds on a closed-loop gift card may have a specified expiration date, which requires the user to use the card within a set time frame.

Closed-loop cards are popular gifts for wedding and baby registries. Many merchants also offer closed-loop gift cards as a bonus for individuals who sign up for their registries.

Open-Loop Gift Cards

Open-loop gift cards offer the equivalent of cash or more precisely, a credit or debit card that can be used at any merchant where that card is accepted, as well as online.

Many of the major charge or credit card issuers/processors, such as American Express, Visa, Discover, and MasterCard, offer open-loop gift cards.

These cards will display the payment processor’s logo and can be used to make all types of electronic payments nearly anywhere.

Open-loop gift cards also have the advantage of serving as a standard prepaid card. These cards are usually reloadable, allowing the user to add funds on their own as well.

Open-loop cards will sometimes require an activation fee of approximately $5, which must be paid when the card is purchased.

Digital Gift Cards

Gift cards debuted in 1994, according to Mageplaza, an extension marketplace of the open-source commerce platform Magento. Increasingly, merchants are opting to offer digital gift cards to customers as an incentive to encourage spending.

Upscale department stores, such as Saks Fifth Avenue and Bergdorf Goodman, send bonus gift cards to their loyalty program members (who have spent a certain amount during a promotion or over a certain time period).

However, 75% of the volume in gift card program redemptions is still in physical cards vs. 25% for digital gift cards, according to a National Gift Card (NGC) industry survey.5

Gift Card Scams

Gift cards are increasingly a target for scammers. According to the Federal Trade Commission (FTC), consumers reported gift card scam losses of $148 million in the first nine months of 2021.6

These scams primarily revolved around scammers asking consumers to purchase gift cards as a form of payment.

The consumer provides the gift card number to the scammer based on the assumption that they’re making a legitimate payment. The scammer then makes off with the money.

Another scam involves the compromise of physical cards in store. Scammers tamper with cards to obtain the gift card number.

When a consumer purchases the card and loads money to it, the scammers are then able to steal those funds by using the card to make purchases.

Target gift cards are particularly popular among scammers, accounting for $35 million of the losses reported in 2021.

Benefits Of Gift Cards 

There are several benefits of gift cards you should know. They include the following:

  • It is a great gift option for any special occasion.
  • A gift card gives recipients the flexibility to purchase anything they want.
  • It is convenient to buy and use.
  • It is safe to use. In the case of digital cards, you do not need to take them around at the potential of losing them.
  • It is a great payment option when you do not have cash or intend to pay with a credit card.

The benefit of gift cards for businesses is to attract new customers and promote brand awareness.

It is a great tool to curb unnecessary spending which is also a great way to avoid bank overdrafts. See Footlocker Gift Card.

Disadvantages Of Gift Cards

  1. Closed-loop gift cards limit you to buy from a certain store.
  2. There might be unused funds left on a gift card which may be due to forgetfulness.
  3. Certain gift cards have hidden fees and expiry dates.
  4. After a certain time (12 months) of not using the gift card, you may be charged an inactivity fee.
  5. If you do not have the card number saved somewhere, losing a physical card can be a headache.
  6. You may be charged an extra fee if you want to reload the gift card.

Different Ways To Redeem Gift Cards

There are 3 different ways you can redeem gift cards. Some of the methods of redeeming gift cards are:

    1. It Can Be Redeemed at the Issuing Retail Physical Store

This is the most common way to redeem a gift card. You only need to walk into the store if they have a physical location in the country.

The way this works is that you pick out the items you wish to purchase, take them to the checkpoint and the total price will be deducted from the gift card balance. This payment is always facilitated by the cashier.

      2. It Can Be Redeemed On The Issuer’s Online Store

It is easier to redeem gift cards on the issuer’s online store. You can conveniently do this from the comfort of your home.

Gift cards you can redeem include but are not limited to Steam gift cards, iTunes gift cards, Xbox gift cards, and Amazon gift cards.

     3. It Can Be Exchanged For Cash

You may be wondering what a gift card is used for in Nigeria. This is the ideal option if you are based in Nigeria. You can sell gift cards for cash conveniently. There are several trading platforms where you can convert your gift card to cash.

The best gift card trading platform in Nigeria is Nosh. You get the best rates for your gift cards. Not only that, you get to enjoy a smooth and fast trading experience. Your wallet is credited immediately after a successful transaction.

I hope you have found this article helpful. In case of any other question about Gift Card and How it works, do well to use the comment section below.

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