This guide on eBay is actually a pretty good list of gift card gotchas.
Archive for the ‘Tips’ Category
As I’ve explored the world of gift cards for my own business, I’ve frequented the places where they are sold. The largest selection of gift cards I’ve seen is at grocery stores like Safeway. Until today, I wasn’t aware, but the those displays are called “Gift Card Malls” and are provided by a company called Blackhawk Network, a Safeway subsidiary. Now they will be installing their displays in Staples stores.(article) While I myself am highly suspicious of the gift card industry, I’ll admit that gift cards do have their benefits. The displays at Safeway in particular with their large selection of gift cards are great for some, ahem, last minute holiday or birthday shopping. :)
The term “gift card” is a pretty generic one. There are quite a few other names used for sub-categories and classifications of different types of gift cards by industry insiders.
Open-Loop: An open-loop gift card is one that can be used in more than one store. Open-loop gift cards belong to one of the major networks; Visa, MasterCard, American Express, and Discover.
Closed-Loop: This is any card that can be used in one store or chain of stores only. For instance, Target, Home Depot, or Starbucks
Stored-Value: The strict definition of a stored-value card is a plastic card encoded with monetary value on a magnetic stripe. In addition to open-loop and closed-loop gift cards, prepaid phone cards, payroll cards, and transit cards also fall into this category. For most pracitical purposed, these days, money isn’t stored directly on the card, but in a database somewhere. It is very hard to tell whether there is any subtle differentiation between the meaning of stored-value and prepaid these days.
Prepaid: Here is a definition I found from the Federal Reserve (here): The term prepaid was associated with products for which the prefunded value is recorded on a remote database, which must be accessed for payment authorization. So defined, the term prepaid describes most of the products on the market today. There are a variety of applications for prepaid cards, including gift cards, payroll cards, flexible spending account cards, government benefit cards (such as food stamps), insurance claim cards, employee reward cards, travel cards, remittance payment cards, and transportation cards. Most prepaid cards serve a single purpose, but there are a few cases in which multiple prepaid functions are combined on one card. In addition, some cards, such as payroll cards, government benefit cards, and transportation cards, can be reloaded with value, while other cards, such as travel cards, insurance claim cards, and most gift cards, cannot.
Debit card: All of the open-loop cards issuers classify their cards as debit cards (they say DEBIT on them). When you do a transaction, it performs a debit from an account that has money in it. The difference between gift debit cards and bank debit cards that also hav a Visa or Mastercard logo is that gift debit cards (as far as I know) do not required you to enter a PIN when you use them. Actually, this is part of the problem with open-loop gift cards; despite their popularity with consumers, many merchants seem to be clueless as to how to run them. I’ve often been asked to provide a PIN when using a Visa gift card when none exists.
I’ve seen stories about debit card holds at gas stations since the Spring. The problem is that at a gas station, where the pump authorizes payment before it knows how much gas you will pump, it typically does an authorization for $50 or $75 first and then when you are done, releases the hold and runs the correct amount. These holds can stay on for quite a long time. With debit cards, this can tie up your funds, which is a problem if you don’t have a lot of funds.
With gift cards, the side-effect of holds can make your cards very hard to use. My experience has been that holds on gift cards can last up to 30 days for authorizations that are correctly canceled. When merchants process credit cards online, it isn’t possible to tell if any information is incorrect (CVV or expiration date) without doing an authorization, which puts a hold on the funds for up to 30 days, even if it is cancelled. Just how long is up to the cards issuing bank. Basically, you can lock up your gift card funds easily if you try to use it online and type in some of the info wrong.
Well, in the latest issue of Consumer Reports, there is an article about Consumers Union and other groups putting pressure on Visa and Mastercard to fix the debit hold problem, at gas stations in particular. Looks like Visa is moving to a real-time clearing process for gas stations.
I am curious to see the effect this will have on gift cards. One side-effect of the debit hold process at gas stations, as I found out by accident once, is that you can go to a gas station with a $50 gift card, it will do a pre-authorization for $50, and then you can charge more than $50 of gas on the card. This works at some, but not all gas stations. I wonder how often this happens. Like most cases of fraud, the merchant, not Visa, probably eats the loss in this case.
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