Electronic gift cards make convenient choices for gifts and have a large market presence. In 2008, financial tracking company Tower Group reported that electronic gift card purchases reached $88.4 billion. However, the cards can lose value over time, losing money for consumers.
Many major retailers offer electronic gift cards to consumers. This includes restaurants, home improvement stores, clothing establishments and other retailers. Major brands include Barnes & Noble bookstores, The Home Depot, Kmart, Amazon and iTunes. Different retailers may have different rules about how electronic gift cards are used.
It’s possible to purchase electronic gift cards online or directly from retailers. Consumers may also purchase electronic gift cards at large grocery stores. Gift amounts can range from $5 to $5,000, and there is no charge for the card.
From a retailer’s perspective, electronic gift cards are attractive because they help attract new customers, increase revenue and encourage repeat business, according to Merchant Connect. The retail tracking company reports that consumers often spend 25 percent more than their cards hold, boosting sales.
Tracking capabilities allow companies to monitor when and how cards are used, providing insight into purchasing trends. Retailers also benefit from the phenomena of “unspending”–when cards are purchased but never used. In 2007, the New York Times reported that in 2006, entertainment retailer Best Buy earned $16 million in card value that was purchased but never redeemed.
Electronic gift cards do offer advantages for consumers. Unlike paper gift certificates, where unused value is often lost because retailers rarely refund actual cash for gift certificate purchases, electronic gift cards maintain unused value down to the penny.
Electronic gift cards, like cash, may not be replaceable if lost or stolen. Gift-givers may miscalculate the taste of a recipient, choosing a retailer or restaurant that is not favored or enjoyed.
From a financial standpoint, consumers may find that cards lose value over time if the balance goes unused. In 2007, consumer website Bankrate.com reported that some cards, including cards for Target stores and Simon Mall, lost value after a given date. In some instances, gift cards are charged a monthly “maintenance fee” of $1 to $5 on unused balances, diminishing value.
Consumers can lose out when companies go bankrupt. In 2008, $100 million in electronic gift card value was compromised when Linens N’Things and Sharper Image closed, according to Tower Group.
Electronic gift cards make popular choices for attractive, convenient last-minute gifts. Less obvious than a cash gift, the electronic gift card may feel more personal because gift-givers acknowledge a recipient’s taste and preference by choosing a favored retailer. Some electronic gift cards are designed for certain occasions–birthdays or holidays, for example–while others may be printed to look trendy, masculine, kid-friendly or elegant.
Retailers may use electronic gift cards as an advertising technique, mailing out cards worth small amounts of money during heavy shopping seasons to encourage store visitation or advertise a special sale.