Gift card
Encyclopedia
Scrip
Scrip is an American term for any substitute for currency which is not legal tender and is often a form of credit. Scrips were created as company payment of employees and also as a means of payment in times where regular money is unavailable, such as remote coal towns, military bases, ships on long...
that is issued by
retailers or bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s to be used as an alternative to a non-monetary gift
Gift
A gift or a present is the transfer of something without the expectation of receiving something in return. Although gift-giving might involve an expectation of reciprocity, a gift is meant to be free. In many human societies, the act of mutually exchanging money, goods, etc. may contribute to...
.
Highly popular, they rank as the second-most given gift by consumers in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
(2006) and 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 Canada, $1.8 billion were spent on gift cards and in the UK, it is estimated to reach 3 billion (GBP) for 2009 whereas in the United States, about $80 billion were paid for gift cards in 2006.
History
The first giftcard using a payments infrastructure was introduced by Blockbuster Entertainment in the fall of 1994 in Ft. Lauderdale, Florida. In the beginning, the Blockbuster giftcard was to replace gift certificates that were being counterfeited with recently introduced color copiers and color printers. It was this over redemption of giftcards that launched the search for an alternative. The first giftcard transactions were processed by what was then, Nabanco of Sunrise, Florida. Nabanco was the developer of the first platform for the processing of giftcards using existing payment infrastructure. Blockbuster was later followed by a card by Neiman Marcus, and the Mobil Oil gas card which initially offered prepaid phone value provided by MCI. Kmart was the next introduction of the Kmart Cash Card which in the early generations provided prepaid phone time with AT&T. Later this feature was dropped as it was not profitable and both Kmart and Mobil. The Kmart 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 common place today in most merchants. From these early introductions, numerous retailers began to adapt a giftcard program to replace their gift certificate programs.Function and types
A gift card may resemble a credit cardCredit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
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
Barcode
A barcode is an optical machine-readable representation of data, which shows data about the object to which it attaches. Originally barcodes represented data by varying the widths and spacings of parallel lines, and may be referred to as linear or 1 dimensional . Later they evolved into rectangles,...
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 crosslinked to the card ID. Gift cards thus are generally not stored-value card
Stored-value card
A stored-value card refers to monetary value on a card not in an externally recorded account and differs from prepaid cards where money is on deposit with the issuer similar to a debit card...
s 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. Some companies like American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
offer custom designs on the cards for businesses wishing to add their logo. Special order cards are available for businesses.
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. In either case the giver would buy the gift card (and may have to pay an additional purchase 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 where the issuer has bundled a number of closed loop cards; an example is a gift card for a specific mall
Shopping mall
A shopping mall, shopping centre, shopping arcade, shopping precinct or simply mall is one or more buildings forming a complex of shops representing merchandisers, with interconnecting walkways enabling visitors to easily walk from unit to unit, along with a parking area — a modern, indoor version...
.
Gift cards differ from gift certificate
Scrip
Scrip is an American term for any substitute for currency which is not legal tender and is often a form of credit. Scrips were created as company payment of employees and also as a means of payment in times where regular money is unavailable, such as remote coal towns, military bases, ships on long...
s, 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
Voucher
A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods. Examples include housing, travel, and food vouchers...
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
Rebate (marketing)
A rebate is an amount paid by way of reduction, return, or refund on what has already been paid or contributed. It is a type of sales promotion marketers use primarily as incentives or supplements to product sales. The mail-in rebate is the most common...
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
Charity gift card
A charity gift card allows a gift giver to make a charitable donation that the gift recipient may direct to the charity of their choice. Although a charity gift card has many similarities to a store gift card, a charity gift card functions quite differently. A charity gift card is an indicator of...
allows the gift giver to make a charitable donation, and the gift recipient to choose a charity that will receive the donation.
Mobile & Virtual gift cards
Mobile gift cards are delivered to mobiles phones via SMSSMS
SMS is a form of text messaging communication on phones and mobile phones. The terms SMS or sms may also refer to:- Computer hardware :...
messages and phone applications including iPhone
IPhone
The iPhone is a line of Internet and multimedia-enabled smartphones marketed by Apple Inc. The first iPhone was unveiled by Steve Jobs, then CEO of Apple, on January 9, 2007, and released on June 29, 2007...
applications allowing users to carry only their cell phones. Benefits include tying them to a particular phone number and ease of distribution through email.
Virtual gift cards are delivered via e-mail to their recipient, the benefits being that they cannot be lost and that the consumer does not have to drive to the bricks and mortar location to purchase a gift card.
Target, one of the top sellers of Gift Cards in the US and Starbucks have launched mobile gift cards. Several companies are expected to follow their lead including gift card vendors like snapgifts.
Other companies, such as GiftRocket, have introduced virtual gift cards that users redeem on their smartphones.. GiftRocket only allows users to transfer money from one account to another. The merchant is not involved in the loop, therefore it's not a traditional gift card. It's more of a cash transfer.
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 ability of the issuing authority to set rules that are detrimental to the consumer. Thus the recipient may have to face expiration dates, administrative fees, restrictions in use, and absence of adequate protection in case of fraud or loss. Over time the value of a gift card may become zero. However, these issues have diminished significantly in recent years. Many states have enacted laws limiting or prohibiting all fees or expiration dates for gift cards. Further, 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.
Gift cards are considered unsecured debt
Unsecured debt
In finance, unsecured debt refers to any type of debt or general obligation that is not collateralised by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment....
by bankruptcy courts, and as such can become valueless when a company files for Chapter 11 reorganization
Chapter 11, Title 11, United States Code
Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...
.
Redemption rate
Not all gift cards are redeemed, which can be for a multitude of reasons. The card may get lost, there may be time decay (expiration and fees) or complex rules of redemption, 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 US in 2006.Canada
In the provinces of ManitobaManitoba
Manitoba is a Canadian prairie province with an area of . The province has over 110,000 lakes and has a largely continental climate because of its flat topography. Agriculture, mostly concentrated in the fertile southern and western parts of the province, is vital to the province's economy; other...
, Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
, Alberta
Alberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...
, British Columbia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
, Saskatchewan
Saskatchewan
Saskatchewan is a prairie province in Canada, which has an area of . Saskatchewan is bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, and on the south by the U.S. states of Montana and North Dakota....
and Quebec
Quebec
Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....
, legislation has been passed to ban expiry dates and fees collected on gift cards.
It does not apply to cards where there is a direct agreement between the user and the bank that issues the card. It refers to the Open Loop gift card program.
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 2009Credit CARD Act of 2009
The Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009 is a federal statute passed by the United States Congress and signed by President Barack Obama on May 22, 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 6 years after the date that the card was loaded. 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 August 22, 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. Rules can be changed by the issuer without notifying the consumer.