What is a gift card? While gift cards have been around since the 1990s, there’s still a bit of confusion about these fantastic business tools. Gift cards are prepaid debit cards that hold a specific amount of funds. The recipient can use these funds for purchases, such as a holiday present or other needs.
People mainly buy gift cards for convenience. They are a useful substitute for cash and provide recipients the freedom to buy whatever. Givers also get the satisfaction of knowing their gift will be well-received. So how do gift cards work?
How Gift Cards Work
Gift cards are a form of payment people use at accepted locations, much like a bank card or credit card. You must load a gift card with funds to use it. However, some cards come pre-loaded with a certain amount.
Organizations can order gift cards online or offline. But in-store gift cards are usually insufficient for most business needs. Instead, it’s far better to order from a vendor that can accommodate the typical business requirements.
For example, the Awards2Go ‘Buy Now Load Later’ option allows businesses to order cards without loading them right away. That greatly improves resource management, allowing any company to use its budget wisely.
Further, gift cards generally come in two operational models: closed-loop and open-loop.
Closed-Loop Gift Cards
These cards only work at one retailer or brand, and you’ll often see them in local stores. They usually have a magnetic stripe on the back, allowing consumers to swipe like a credit card. But some closed-loop cards require scanning like you’d with a UPC (universal product code).
Additionally, the limitations of these cards make them less flexible and ideal for businesses. They force recipients to only shop at one brand, which is a significant inconvenience. Plus, you can’t typically reload closed-loop cards. Once the receiver uses up the balance, the card becomes unusable.
Open-Loop Gift Cards
Open-loop cards operate like credit cards or standard prepaid cards and are accepted practically everywhere – making them far better than closed-loop. Open-loop cards usually have a payment processor’s logo, such as Visa or Mastercard. People can also make online and recurring payments with these cards. And unlike closed-loop, you can reload open-loop cards.
Types Of Gift Cards
There are two types of gift cards – physical (a plastic card) and digital. Even though gift cards go by various brand names, no other types exist.
Physical Gift Cards
Physical gift cards are the most popular among consumers. They may feel like a better gift because of tangibility. You can physically wrap them for special occasions like Christmas or birthdays. The same isn’t possible with digital cards.
Further, many organizations love physical gift cards because of their marketing potential. For example, companies can customize Awards2Go cards to include specific colors, designs, and logos. Such a level of customization is great for brand awareness and encouraging word-of-mouth.
Some vendors offer fast shipping for physical gift cards. Awards2Go clients can receive their orders, bulk or otherwise, in as little as two days.
Digital Gift Cards
As the name suggests, digital gift cards are intangible. Recipients receive a unique gift code number – redeemable at online retailers and some physical stores for purchases. These cards are also growing strongly and will likely overtake physical cards soon.
According to IMARC Group, the digital gift card market grew by 15% (CAGR) between 2015 and 2020. Researchers also expect the strong growth to continue from 2021 to 2026.
Digital gift cards also reach recipients faster. You can send them via email or other electronic means, and like physical cards, organizations can customize various things. Awards2Go clients can include a personalized message and brand details, for example.
Advantages Of Gift Cards
Gift cards offer several advantages for businesses. For one, they are convenient and serve as a substitute form of payment for cash or credit cards. Companies can also use gift cards to control employee ‘petty cash’ spending or as expense cards.
Other advantages of gift cards include:
Improve Brand Awareness
A gift card system is an effective marketing tool if implemented correctly. Organizations that design or customize their gift cards to match brand colors and include a logo – can see significant boosts. After all, your logo would be in the customer’s pocket and shown to people each time they use it. Your company is also bound to be shared when people purchase gift cards for friends or family.
Gain More Customers
Gift cards can encourage people to check out your business. For example, someone who receives one from a friend would have no choice but to visit your brand. Gift cards are also a lure for consumers, attracting passersby or those searching for gifts.
Selling and accepting gift cards can increase your sales. Shoppers report spending more than their gift card amount – paying less for what they truly want is better than full price.
Reduce the Potential for Fraud
Recipients can partially redeem most gift cards without using up all the funds or receiving cashback. In other words, there’s no need ever to request cash, which decreases the likelihood someone would try to defraud the organization.
Some companies also use gift cards for store credit when items return to reduce fraud, such as returning expired or stolen merchandise for cash. Additionally, tracking someone if fraud does occur is a much simpler process.
Gift cards make it easy to properly recognize and appreciate staff by addressing a common oversight – rewarding good behaviors. A physical reward is more meaningful and effective at fostering the right behaviors or expressing adequate appreciation for employee contribution.
Disadvantages Of Gift Cards
There are very few disadvantages to using gift cards, and the cons that exist pertain to close-loop cards mainly. On the other hand, most open-loop gift cards come well structured with almost no drawbacks, such as the cards from Awards2Go.
Some of the downsides of gift cards include:
After making purchases, any small amount of money left on the card can end up wasted. That’s because close-loop cards often have an expiration date for funds. Some customers deal with this by overspending a little.
Fees May Be Too High
This one is a problem for both closed-loop and open-loop cards. Some vendors charge outrageous fees for purchases, reloading funds, and inactivity.
Lower Purchase Power
Closed-loop cards limit the recipient’s purchasing power because they can’t visit different companies. With these cards, you must shop from the issuer typically.
Loss Or Theft Challenges
Depending on the vendor, losing or having your gift card stolen may be costly.
You may not be able to recover your card if they aren’t registered, or the gift card number is also unavailable.
Awards2Go Visa Gift Cards
With Awards2Go Visa gift cards, you can increase your business relationships, employee morale or productivity, and sales. These cards are open loop, offering tremendous ease and practically no downside. You can load funds in any denomination from $5 to $1000 and order as many as required – no limits.