• June 16, 2024

Gift Card Definition, Types, and Avoidance Scams

How Do Reward Cards Operate?

A prepaid debit card with a fixed amount of money on it that may be used for a variety of purchases is called a gift card. business gift cards are meant to be used at specific merchants or stores, whereas general-use prepaid gift cards are not linked to any single business and can also be used to withdraw cash from automated teller machines (ATMs).

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The Way a Gift Card Works

Gift cards are prepaid debit cards loaded with cash for use at a later time. There are two primary types of gift cards: open-loop and closed-loop. Both types may often be used offline as well as online.

Many gift cards, sometimes called stored value cards, have a minimum and maximum initial loading amount. For example, a $500 limit and a $10 minimum may apply. In certain situations, gift cards can be used to pay for part of a transaction; cash, debit, or credit should be used for the remaining balance. A lot of gift cards may also be registered online, which lowers the risk of theft and makes it possible to track and freeze the remaining balance in the event that a card is lost. In this sense, some gift cards are safer than cash.

Closed-loop sales cards

Closed-loop gift cards, which allow the bearer to purchase anything from that specific retailer, are often advertised by stores. Closed-loop cards are often limited to usage at a single merchant, either in-person or online. However, if a single company owns several locations, it could provide gift cards that can be used at each of its retailers. One such business is Gap Inc. (GPS); all of its partner stores, including Gap, Banana Republic, Old Navy, and Athleta, frequently take its credit cards.

Closed-loop gift cards frequently don’t require an activation fee. Instead of the name of the financial services company that actually oversees the transaction mechanics, the merchant’s logo appears on these gift cards, acting as a sort of commercial advertisement.

A closed-loop gift card is essentially worthless once the balance is used up because it cannot usually be topped again. Furthermore, a closed-loop gift card’s balance may contain an expiration date that the user must meet. Closed-loop gifts are popular on baby and wedding registries. Many companies now provide closed-loop gift certificates as a bonus to customers who register for their registries.

Cards that have an open loop

If anything, open-loop gift cards work like cash—that is, like a credit or debit card that may be used online and at any participating retailer. Many of the main charge and credit card issuers and processors, such as American Express, Visa, Discover, and MasterCard, provide open-loop gift cards. These cards bear the payment processor’s logo and may be used virtually anywhere to make any form of electronic payment.

The ability to utilize open-loop gift cards much like traditional prepaid cards is an additional advantage. The user can add money on their own because these cards are frequently reloadable.

Digital Present Cards

Gift cards were first introduced in 1994, according to Mageplaza, an extension marketplace for the open-source Magento commerce platform. More and more companies are opting to provide digital gift cards to customers in an attempt to encourage them to make larger purchases.

Upscale department stores such as Saks Fifth Avenue and Bergdorf Goodman provide bonus gift cards to their loyalty program members (who have spent a specified amount during a campaign or over a given time period). However, according to a National Gift Card (NGC) industry survey, physical gift cards still account for 75% of gift card program redemption volume, with digital gift cards accounting for 25%.

Scams That Use Gift Cards

Gift cards are becoming a more popular target for scammers. The Federal Trade Commission (FTC) reports that during the first nine months of 2021, consumers reported losing $148 million to gift card frauds.

These con games mostly involved con artists asking their victims to purchase gift cards to be used as payment. The consumer provides the con artist the gift card number, thinking they are making a legitimate purchase. The con artist then takes off with the money.

Another scam involves physical cards that are stolen at a retailer. Con artists manipulate the cards in order to obtain the gift card number. After the card is purchased, the con artists can use it to make purchases and then take the money that the buyer deposited onto the card.

Con artists love Target gift cards so much that they were responsible for $35 million in losses that were reported in 2021.

Explain a gift card.

A gift card is a prepaid card that may be used for purchases and other financial transactions. Gift cards come in two varieties: open loop and closed loop, which have an impact on the card’s limitations on usage.

Is it feasible to use a gift card to withdraw cash from an ATM?

You can use the gift card to get cash out of ATMs if the card allows it. Typically, this is restricted to open-loop cards, or cards that aren’t associated with a certain brand or merchant.

Do gift cards include fees or a date of expiration?

Depending on the details, a gift card may expire if the money loaded onto it is not spent within a set period of time. Furthermore, there are fees involved with activating a new gift card or replenishing an old one. Numerous prepaid gift cards may also come with monthly or dormant-account fees.

The Last Word

Gift cards are useful for online and in-store transactions. You may purchase them as gifts for your loved ones, or you could be eligible to get gift cards as compensation for your purchases from a certain merchant. To avoid expenses and the chance of a gift card expiring, it’s essential to understand how gift cards work and the places they may be used. But it’s important to be on the lookout for gift card theft, especially around the holidays when more people buy and use them for transactions.