Gift Card – Definition, Types, and 6 Benefits Of Gift Card
Gift Card – Definition, Types, and 6 Benefits Of Gift Card
Post Outline
Gift cards can be a good option if you’re one of the many people who struggle to find the perfect present for your friend’s wedding or your teenage nephew’s birthday. A gift card has the same appearance and functionality as a debit card, but the recipient preloads it with money.
The Gift Card recipient can then use the pre-paid funds to make various online and in-person retail purchases using electronic payments.
A gift card can occasionally be used to pay for a portion of a purchase as well. More information on using a gift card is available here. The money loaded on the card, however, cannot be withdrawn; it can only be used to make purchases with the card. The expiration period for gift cards issued by banks can be three to twelve months.
What Is A Gift Card?
A gift card is a prepaid debit card with money on it that can be used for various purchases. Store gift cards are made to be used at particular stores or retailers, whereas general-use prepaid gift cards are independent of any one retailer and can also be used to withdraw cash from ATMs (ATMs).
How A Gift Card Works
A gift card is a prepaid debit card that can be loaded with money for future use. Gift cards typically come in two varieties: closed loop and open loop. Typically, both types can be used offline and online. There are frequent minimum and maximum initial loading amounts for gift cards.
For instance, there might be a minimum of $10 and a maximum of $500. In some cases, gift cards may be used to cover a portion of a purchase, with cash, debit, or credit being used to cover the remaining balance.
Many gift cards can also be registered online, which enables the remaining balance to be tracked and frozen in the event that a card is lost, as a precaution to reduce the risk of losses. Some gift cards are thus more secure than cash. A reload fee might be charged each time you add money, depending on the card in question.
Closed-Loop Gift Cards
Closed-loop gift cards are frequently promoted by retailers and allow the cardholder to make any purchase from that particular merchant. Closed-loop cards typically can only be used with a single retailer, either in-store or online.
However, if a single business owns a number of distinct retailers, it may issue gift cards that can be redeemed at any of them. One such company is Gap Inc. (GPS), whose cards are typically interchangeable at all the stores they are connected to, including Gap, Banana Republic, Old Navy, and Athleta. Activation fees are typically not necessary for closed-loop gift cards.
Additionally, although they do have the merchant’s logo, these gift cards do not feature the logo of the processor (the financial services provider that actually manages the transaction mechanics), so they do not serve as advertising for the retailer.
Once the balance is used, closed-loop gift cards are useless because they are typically not reloadable. A closed-loop gift card may also have funds with a predetermined expiration date that the user must use before that date. Gifts for baby and wedding registries frequently include closed-loop cards.
As an added perk for people who register for their registries, many businesses also provide closed-loop gift cards. Persistence Market Research projects that the global gift card market will grow at a compound annual growth rate of more than 12% through 2031.
Open-Loop Gift Cards
Open-loop gift cards provide the same value as cash, or more specifically, a credit or debit card that can be used offline and online at any business that accepts that card. Open-loop gift cards are available from many top charge or credit card issuers/processors, including American Express, Visa, Discover, and MasterCard.
These cards will bear the payment processor’s logo and can be used almost anywhere to make any kind of electronic payment. The ability to function as a typical prepaid card is another benefit of open-loop gift cards.
These cards are frequently reloadable, enabling the user to add money independently. There may be an activation fee of around $5 for open-loop cards, which must be paid at the time of purchase.
Digital Gift Cards
According to Mageplaza, an extension marketplace for the open-source Magento e-commerce platform, gift cards first appeared in 1994. Merchants are increasingly choosing to provide digital gift cards to customers as a perk to encourage spending.
Luxury department stores like Saks Fifth Avenue and Bergdorf Goodman reward loyalty program members with bonus gift cards (who have spent a certain amount during a promotion or over a certain time period).
According to a National Gift Card (NGC) industry survey, however, physical gift cards still account for 75% of the volume of gift card program redemptions. In comparison, digital gift cards account for 25% of the total.
Benefits Of Using Gift Cards
There are several benefits to using gift cards, including:
- Convenience: Gift cards are easy to purchase, and they make great gifts for friends, family members, or colleagues.
- Flexibility: Gift cards can be purchased from a specific retailer or store, allowing recipients to choose what they want.
- Security: Gift cards are a secure way to shop, as they can be easily replaced if lost or stolen.
- Budgeting: Gift cards can help individuals budget by setting a specific amount to spend at a specific store or retailer.
- Incentives: Gift cards can also be used as incentives or rewards for employees or customers.
- Online shopping: Gift cards can be used for online shopping, making it easy to buy goods and services without leaving the comfort of your home.
Overall, gift cards provide flexibility, convenience, and security and are a great way to manage to spend and offer rewards.