how a gift card works
gift cards are a form of prepaid debit card that s loaded with funds for future use there are generally two types of gift cards open loop and closed loop both types typically can be used online and in person 2many gift cards also known as stored value cards will have a minimum and maximum initial loading amount for example there may be a minimum of 10 and a maximum of 500 in some situations gift cards can be used to pay for a portion of a purchase with cash debit or credit used to balance the expense as a precaution to mitigate the risk of losses many gift cards can also be registered online a procedure that allows the remaining balance to be tracked and frozen if a card is lost in this way some gift cards are safer than cash depending on the card in question a reload fee may apply to add money each time closed loop gift cardsclosed loop gift cards are often marketed by stores allowing a cardholder to purchase anything from that specified retailer closed loop cards generally can be used only with a single merchant either at the store or on its website 2 however if one company owns several different retailers it might issue gift cards that can be used at any of them gap inc gps is one such corporation its cards usually can be used interchangeably at any of its affiliated stores including gap banana republic old navy and athleta closed loop gift cards usually will not require any activation fees also these gift cards will not include a processor s logo the financial services company that actually handles the transaction mechanics though they do include the merchant s logo in a sense they act as advertising for the store closed loop gift cards usually are not reloadable so once the balance is spent they have no further use also funds on a closed loop gift card may have a specified expiration date which requires the user to use the card within a set time frame closed loop cards are popular gifts for wedding and baby registries many merchants also offer closed loop gift cards as a bonus for individuals who sign up for their registries the global gift card market is expected to achieve a compound annual growth rate of more than 12 through 2031 according to persistence market research 3open loop gift cardsopen loop gift cards offer the equivalent of cash or more precisely a credit or debit card that can be used at any merchant where that card is accepted as well as online 2 many of the major charge or credit card issuers processors such as american express visa discover and mastercard offer open loop gift cards these cards will display the payment processor s logo and can be used to make all types of electronic payments nearly anywhere open loop gift cards also have the advantage of serving as a standard prepaid card these cards are usually reloadable allowing the user to add funds on their own as well open loop cards will sometimes require an activation fee of approximately 5 which must be paid when the card is purchased digital gift cardsgift cards debuted in 1994 according to mageplaza an extension marketplace of the open source commerce platform magento 4 increasingly merchants are opting to offer digital gift cards to customers as an incentive to encourage spending upscale department stores such as saks fifth avenue and bergdorf goodman send bonus gift cards to their loyalty program members who have spent a certain amount during a promotion or over a certain time period however 75 of the volume in gift card program redemptions is still in physical cards vs 25 for digital gift cards according to a national gift card ngc industry survey 5gift card scamsgift cards are increasingly a target for scammers according to the federal trade commission ftc consumers reported gift card scam losses of 148 million in the first nine months of 2021 6these scams primarily revolved around scammers asking consumers to purchase gift cards as a form of payment the consumer provides the gift card number to the scammer based on the assumption that they re making a legitimate payment the scammer then makes off with the money another scam involves the compromise of physical cards in store scammers tamper with cards to obtain the gift card number when a consumer purchases the card and loads money to it the scammers are then able to steal those funds by using the card to make purchases target gift cards are particularly popular among scammers accounting for 35 million of the losses reported in 2021 6avoid purchasing gift cards in store that look damaged or otherwise tampered with and only use gift cards to make payments to people who you know and trust 