What is a gift card?

A gift card is a prepaid debit card with a set amount of money for purchases. While store gift cards are limited to specific shops, general-use prepaid gift cards can be used at ATMs and are not linked to any one business.

How Gift Cards Work

Gift cards are prepaid debit cards containing pre-loaded cash for future usage. The two main types of gift cards are open-loop and closed-loop. Both categories are usually usable online and offline.

Gift cards often have minimum and maximum initial loading amounts. Minimum $10, maximum $500. In some cases, gift cards can cover a portion of a transaction, with cash, debit, or credit used to cover the remaining amount. Many gift cards may be registered online to trace and freeze the amount if lost. This makes certain gift cards safer than cash.

The card’s reload charge may apply each time you add money.

Closed-loop gifts

Stores commonly promote closed-loop gift cards, enabling cardholders to shop at that business. One retailer, either in-store or online, accepts closed-loop cards. 2 However, a corporation that owns many outlets may offer gift cards for usage at all of them. GPS cards are interchangeable at Gap, Banana Republic, Old Navy, and Athleta.

No activation cost is typical for closed-loop gift cards. These gift cards advertise the shop because they carry the merchant’s brand but not the processor’s logo.

After spending the sum, closed-loop gift cards are useless. Closed-loop gift cards may include expiration dates, so users must utilize them within that timeframe. Closed-loop cards are popular wedding and baby registry presents. Merchants often give registrants closed-loop gift cards.

Persistence Market Research expects the worldwide gift card market to expand by over 12% annually until 2031.

Gift Cards: Open-Loop

Open-loop gift cards function as credit or debit cards instead of cash and are valid at merchants and online. American Express, Visa, Discover, and MasterCard provide open-loop gift cards. These cards may be used for all electronic payments almost anywhere and will display the payment processor’s logo. Open-loop gift cards also work as prepaid cards. Reloadable cards let users add funds themselves. Open-loop cards may demand a $5 activation charge upon purchase.

Digitized Gift Cards

Magento’s plugin store, Mageplaza, reports introducing gift cards in 1994. Customers are increasingly receiving digital gift cards from shops to promote spending.

Saks Fifth Avenue and Bergdorf Goodman provide loyalty program members with additional gift cards after spending a particular amount during a promotion or period. A National Gift Card (NGC) industry report reveals that 75% of gift card redemptions are still physical, compared to 25% for digital cards.

Gift Card Fraud

Scammers target gift cards more. In the first nine months of 2021, customers reported $148 million in gift card fraud losses, according to the FTC.

Gift cards were the primary payment method for many frauds. The consumer gives the fraudster their gift card number, thinking they’re paying. The fraudster makes off with the money.

The compromising of shop cards is another trick. Scammers alter cards to get gift card numbers. Scammers steal money by using the card to purchase after a consumer loads money on it.

For $35 million of 2021 losses, fraudsters targeted Target gift cards.

Avoid buying broken or manipulated gift cards in stores; only use them to pay people you trust.

What is a gift card?

A gift card is a prepaid card for purchases and other financial operations. Gift cards can be open- or closed-loop, determining their use.

Can I use a gift card to withdraw ATM cash?

A gift card can withdraw cash from an ATM if it enables it. Open-loop cards, unaffiliated with any business or merchant, allow this.

Do gift cards expire or charge?

Depending on the card, unused funds on a gift card may expire. A new gift card or reloading an old one may incur expenses. Certain prepaid gift cards incur monthly or dormant account fees.

Bottom Line

Gift cards are beneficial for online and in-store shopping. You may buy gift cards to present to friends and family or earn them when buying from a business. Avoid fees and expiration by understanding gift cards and where to use them. Also, watch out for gift card fraud, especially during the holidays when more people buy and use them to shop.

Conclusion

• Store gift cards (closed loop) can only be used at specific merchants, whereas general-use prepaid gift cards (open loop) can be used anywhere.
• Some gift cards allow ATM withdrawals.
• Most closed-loop gift cards are non-reloadable.