November 18, 2018

The Saga of Gift Cards

For most people, gift cards are a very convenient way to shop for people for birthdays and Christmas especially if you are lost regarding what to get them. The most common form of gift card is plastic and has a magnetic strip that encodes the monetary value. Virtual cards are those that are sent to a recipient in an electronic form. These cards are sent via email. Mobile cards are sent to a recipient via email and require a handset or other mobile device to redeem it. Normally the purchase and the redemption of these gift cards is a routine task unless the retailer has declared bankruptcy as was recently the case with Toys R Us.

Then there are issues. Most merchants won’t replace gift cards if they are lost or stolen and in some states gift cards expire after five years. The best advice is to use the gift card you receive right away. If you hear of a retail bankruptcy, check its website for any instructions or retail locations about whether it is honoring its cards and for how long. Also, check your state consumer protection agency which may have information and advice.

Gift cards are a big business. In 2018, it is estimated that gift cards will reach $18 billion dollars. There are some amazing statistics:

  • It is estimated that 1-in-3 males prefer gift cards.
  • The Target gift card is the most popular for kids.
  • Walmart represents 16% of gift cards sold.
  • By category of spending, restaurants are tops at 41% with department stores (28%) and coffee shops (21%) following a close second and third.
  • The average gift card buyer spends $153.08 on gift cards.

From an industry perspective, gift card spillage or unused cards can run as high as $1 billion dollars per year. Such spillage includes the physical loss of the card, stolen cards or leaving a balance on the card after the initial purchase. As of Thursday, March 15, 2018, Toys R Us stated that it will honor its gift cards for the next 30 days only. After the 2011 liquidation of the bookstore chain, Borders Group, gift card owners fought for years in court and lost. Gift cards are, technically, unsecured debt and bankruptcy law gives them no special protection.

The advent of gift cards has literally changed the way we gift gifts. No longer do we spend hours searching for the perfect present. A birthday is the number one reason to give a gift card followed by the Holidays, Mother’s Day, Father’s Day and Valentine’s Day. There is no doubt that gift cards are here to stay. But there is caution attached to this practice.

Billions in gift cards go unredeemed every year. Many people recommend against buying bank-issued gift cards emblazoned with major credit card company logos such as Visa, Mastercard or American Express. While these cards can be used at merchants that accept them, many have fees when you use them. Also, after the first year, these cards may have additional charges for the card holder, including monthly service and dormancy fees.

Given all of this, if you are going to buy gift cards, be sure the recipients will use them right away or you are confident the merchant is going to be around for a while.

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Written by
Donald Wittmer

DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati's Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.

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Written by Donald Wittmer