Gift Card

A gift card is a prepaid card, or a digital code, that holds a set amount of money which the holder can spend on goods or services. It is usually bought by one person and given to another as a present, but gift cards are also used for employee rewards, customer refunds and promotions. The value is paid in advance to the issuer, which records it as a liability until the card is used. Gift cards may be physical plastic cards with a barcode or magnetic stripe, or e-gift cards delivered by email or in an app.

Gift cards fall into two main groups. Closed-loop cards are issued by or for a specific retailer or group and can be used only there, operating like a closed-loop card scheme. Open-loop cards carry a network brand and can be spent wherever that brand is accepted, using the open-loop card scheme infrastructure. The general term prepaid gift card is often used for the network-branded type.

When a gift card is sold, it is activated at the point of sale or online, and the amount paid is loaded onto the card's account in the issuer's system. The card itself usually does not hold the balance; it carries an identifier that links to the account. When the holder makes a purchase, the merchant's system checks the balance and deducts the amount. Closed-loop cards are processed through the retailer's own systems or a gift card processor, while open-loop cards are processed through card networks like other card payments. Many gift cards cannot be reloaded, although some can.

Gift cards are sold in stores, online and through third-party gift card malls in supermarkets and pharmacies, where a single rack may hold cards from many brands. Specialist distributors manage this network, activating cards at the till and sharing commissions with the retailer selling them. Corporate programmes buy cards in bulk for incentives, and digital platforms allow instant delivery of e-gift cards. For merchants, gift cards bring upfront cash, new customers and additional spending, since holders often spend more than the card's value.

A share of gift card value is never redeemed, because cards are lost, forgotten or left with small balances. This unredeemed value is called breakage. Under accounting standards, issuers may recognise expected breakage as revenue over time in proportion to redemptions, if they can estimate it reliably. In some jurisdictions, however, unclaimed balances must be handed to the state under unclaimed property laws after a period of inactivity, which affects how much breakage issuers keep.

In the United States, the Credit Card Accountability Responsibility and Disclosure Act of 2009 and the Regulation E gift card rules generally prohibit gift cards from expiring within five years of issue or the last load, and restrict dormancy, inactivity and service fees, which may be charged only after at least 12 months of inactivity and with clear disclosure. Many states add further protections. In the European Union and United Kingdom, gift cards usable at a single retailer or limited network often fall outside e-money regulation under the limited network exclusion, while open-loop cards are usually issued as electronic money by a licensed institution. Consumer law may also govern expiry dates and fees. Anti-money laundering rules apply to prepaid products above certain thresholds, and some jurisdictions limit the value that can be loaded without identifying the purchaser.

Gift cards are widely used in fraud because they can be bought with cash, transferred instantly by sharing a code and spent or resold quickly. In gift card scams, criminals impersonating government agencies, utility companies, technology support or relatives persuade victims to buy cards and read out the numbers. Legitimate organisations do not ask for payment in gift cards. Other risks include tampering with cards on display racks to steal codes before activation, use of stolen payment cards to buy gift cards, bots guessing card numbers in enumeration attacks, and laundering of criminal proceeds through gift card purchases and resale. Retailers respond with purchase limits, staff warnings, secure packaging and monitoring of unusual purchase patterns.

Many gift cards can now be stored in mobile wallets or retailer apps, combining the gift balance with loyalty programmes. Some retailers allow customers to convert store credit or refunds into gift card balances. Secondary market platforms let holders sell unwanted cards at a discount, which provides liquidity but also attracts fraud, so such platforms often verify balances and limit payouts on newly sold cards.