Tap to Read ➤

How do Gift Cards Work

Tulika Nair Mar 2, 2019
At some point of time or the other you may have either gifted someone a gift card. Here, we tell you everything that you may have wanted to know about the functioning of gift cards.
How often have you been in a situation wherein you have been at a complete loss about what to give a person for their birthday or for an anniversary? Most of us have been there, where everything that you could possibly think of has either been already bought is being gifted by someone else. It is in such situations that a gift card comes out trumps.
Sure, some people think that gift cards are extremely impersonal but the fact of the matter is that a gift card allows a person to buy exactly what he or she wants. A gift card is issued by retailers and banks and is a monetary equivalent (with restrictions) which can be used as an alternative to traditional gifts.
Gift cards have today become extremely popular with surveys showing that it is the most wanted gift by women and third most wanted gift by men. So how do these cards work? Here, we answer this question for you.

Gift Cards: How do They Work

As a consumer you can buy a gift card at most retail outlets. You can also choose to buy gift cards from banks which are affiliated to Visa, MasterCard, or American Express. With the latter type of cards, it is possible to use them at pretty much an outlet where the brand is accepted.
Gift cards are generally of two types; the closed loop gift cards are those that can be redeemed at only the specific store where it has been bought. With such gift cards, the outlets often benefit because the consumer generally add to the cash limit on the card to make up purchase differences.
The other type of card is known as the open loop gift card. These cards are those that are purchased from financial groups like Visa and MasterCard and can be used wherever cards from the financial group are accepted.
When you buy a gift card, you will notice that it either has a magnetic strip or a bar-code that can be read with the help of an electronic credit card machine. The price of the card, the merchant who has sold it, the card number, are all details that are stored in this magnetic strip.
When a product is purchased and the card is redeemed to use it against the purchase, the card is scanned and the entire or a part of the monetary value associated with the card is used to pay for the purchased. Once the purchase is made the user is supplied with a receipt that shows details of the purchase made and the balance remaining on the card.
Many gift cards do not have a predetermined value and the amount is entered in when the customer buys the gift card. The amount purchased is linked to the ID of card and made note of in the database of the store. Gift cards are generally identified by their ID or code and not personalized with individual names. Therefore, these cards can be used by anyone.
During the economic recession that the world faced many people considered gift cards worthless because several organizations made the cards invalid. Also gift cards have had their share of detractors because of the many hidden costs associated with a gift card which include purchase fees, inactivity fees, transaction fees, etc.
There is also the problem that gift cards come with an expiry date which can be limiting in certain ways. Also as a consumer, there are restrictions regarding where you can use the card.
But despite all of these supposed problem, the fact remains that gift cards are one of the most popular gift items in modern times. Not only does your friend or family member have the freedom to buy exactly what they want, there is no question of buying the wrong gift.