How Gift Cards Work

Understanding Gift Cards

A gift card is a prepaid stored-value payment card that contains a specific amount of money available for use at one or more retailers. Gift cards come in two primary forms: physical plastic cards and digital electronic codes.

The Gift Card Lifecycle

1. Purchase and Loading

Gift cards can be purchased from various sources including retail stores, online platforms, and directly from brand websites. When a gift card is purchased:

• A specific monetary value is loaded onto the card
• The card is assigned a unique identification number
• The transaction is recorded in the issuer's system
• For physical cards, a receipt is usually provided showing the card number and value
• For digital cards, the code is typically sent via email or displayed on screen

2. Activation

Many gift cards require activation before use, especially physical cards purchased in stores:

• Activation typically occurs at the point of sale when the card is purchased
• The cashier or automated system links the card number to its loaded value
• Until activated, the card holds no value and cannot be used
• This security measure helps prevent theft of unactivated cards

3. Delivery

Gift cards reach recipients through various delivery methods:

• Physical Cards: Handed directly to the recipient or mailed in decorative packaging
• Digital Cards: Sent via email with the card code and redemption instructions
• Mobile Cards: Delivered through apps or SMS text messages
• Printable Cards: Digital codes that can be printed at home

4. Redemption

Using a gift card is straightforward:

• In-Store: Present the card at checkout; the cashier scans or manually enters the card number
• Online: Enter the card number and PIN (if applicable) during checkout
• Mobile App: Add the card to the app wallet and select it as payment method
• The purchase amount is deducted from the card balance
• Remaining balance stays on the card for future use

5. Balance Management

Tracking your gift card balance is important:

• Check balance online through the issuer's website
• Call the customer service number typically found on the back of the card
• Ask a cashier to check the balance in-store
• Review recent purchase receipts which often show remaining balance
• Use mobile apps if the retailer offers digital wallet features

Types of Gift Cards Explained

Closed-Loop Gift Cards

These cards can only be used at specific retailers or within a specific chain:

• Limited to the issuing merchant or merchant group
• Often carry the retailer's branding
• May offer special promotions or rewards when used
• Typically do not have purchase fees
• Examples include single-brand retail or restaurant cards

Open-Loop Gift Cards

These cards can be used anywhere that accepts the associated payment network:

• Work at multiple merchants wherever the payment network is accepted
• Carry logos of major payment networks
• Often have activation or purchase fees
• May have expiration dates for the card itself
• Function similarly to debit cards

Security Features

Modern gift cards include several security measures:

• Unique Card Numbers: Each card has a distinct identification number
• PIN Protection: Many cards require a PIN for online or phone transactions
• Scratch-Off Panels: Codes are hidden under protective panels to prevent premature exposure
• Activation Required: Cards must be activated at purchase to hold value
• Registration Options: Some issuers allow card registration for loss protection
• Balance Verification: Systems to check legitimate balances and detect fraud

Important Considerations

Expiration and Fees

Understanding the terms of your gift card is essential:

• Many jurisdictions have laws preventing gift card expiration within certain timeframes
• In the United States, federal law prohibits expiration before five years from purchase or last reload
• Some cards may have dormancy or inactivity fees after extended non-use
• Open-loop cards may have monthly maintenance fees after a certain period
• Always read the terms and conditions provided with your card

Partial Redemption

Most gift cards allow partial use:

• If a purchase exceeds the card balance, you can pay the difference with another payment method
• If a purchase is less than the card balance, the remaining value stays on the card
• Small remaining balances can be used for future purchases
• Some retailers allow multiple gift cards to be combined for a single purchase

Lost or Stolen Cards

Protection policies vary by issuer:

• Register your card when possible to enable replacement if lost
• Keep card numbers and receipts in a safe place
• Report lost or stolen cards to the issuer immediately
• Many issuers will replace registered cards for a fee or free of charge
• Unregistered cards with no proof of purchase may not be replaceable

Best Practices for Gift Card Use

Follow these guidelines to maximize your gift card experience:

1. Inspect Before Purchase: Check that security features are intact and the card has not been tampered with
2. Keep Documentation: Save receipts, purchase confirmations, and card numbers
3. Activate Promptly: If activation is required, do it as soon as possible
4. Register When Possible: Take advantage of issuer registration programs for added protection
5. Use Wisely: Be aware of expiration dates and use cards before they expire
6. Check Balance Regularly: Monitor your balance to avoid declined transactions
7. Beware of Scams: Never provide gift card numbers to unknown parties or as payment for unexpected bills
8. Read Terms: Understand all conditions, fees, and restrictions before using the card

The Technology Behind Gift Cards

Gift cards use various technologies to function:

• Magnetic Stripes: Traditional physical cards use magnetic stripes to store data
• Barcodes: Many cards include barcodes for quick scanning at registers
• Chip Technology: Newer cards may include EMV chips for enhanced security
• Database Systems: Card values are stored in secure databases linked to card numbers
• Encryption: Digital cards use encryption to protect codes during transmission

Environmental Considerations

The gift card industry is evolving with environmental awareness:

• Digital gift cards eliminate plastic waste
• Some companies now offer cards made from recycled materials
• Virtual cards reduce carbon footprint associated with production and shipping
• Mobile wallet integration reduces the need for physical cards

Understanding how gift cards work empowers you to use them effectively and safely. Whether you're giving or receiving gift cards, this knowledge helps ensure a positive experience.