Gift cards are a substantial business for retailers, and the reasons have as much to do with behaviour as with the sale itself.
Float
Money received before goods are provided.
Which is working capital for the retailer at no cost.
The period between purchase and redemption can be months.
Breakage
Value never redeemed.
Which is recognised as revenue under defined accounting rules.
Estimates of unredeemed value run to substantial sums annually across the economy.
Uplift
Recipients frequently spend more than the card value.
Which is documented in retail research.
The card functions as a discount that brings a customer through the door.
Expiry and fees
Federal law restricts expiry dates and inactivity fees on gift cards.
Which requires a minimum period before expiry and limits fee imposition.
State laws provide additional protections in many jurisdictions.
Unclaimed property
Some states require unredeemed balances to be remitted to the state after a period.
Which allows the holder to claim the value from the state.
Rules vary considerably by state and by card type.
Insolvency risk
Cards are unsecured claims if a retailer fails.
Which is why holding balances is risky when a retailer is in difficulty.
Administrators decide whether to honour them, and practice varies.
Fraud
Card draining, where numbers are recorded in store and monitored for activation.
Which has produced consumer warnings and packaging changes.
Checking packaging integrity before purchase is the practical precaution.
Scam use
Fraudsters request payment by gift card because it is irreversible.
No legitimate agency or business requests payment this way, without exception.
Practical advice
Redeem promptly, check the packaging, register the card where possible and keep the receipt.
Corporate and incentive use
Bulk purchase for employee rewards and promotions.
Which is a substantial channel with its own discount structures.
Tax treatment of gift cards as employee compensation differs from other gifts.
Resale markets
Platforms buying unwanted cards at a discount and reselling them.
Which provides liquidity and carries fraud risk on both sides.
Buying discounted cards for retailers you use regularly is a genuine saving where the source is reputable.
Digital cards
Delivered electronically with instant availability.
Which reduces physical card fraud and introduces account compromise risk.
Storing card numbers in email is a documented exposure.
Balance checking
Most issuers provide online balance checking.
Which is worth doing periodically for cards held.
The practical summary
Redeem promptly, buy from reputable sources, and never pay anyone who requests a gift card for anything.
Accounting treatment
Revenue is recognised on redemption, with breakage recognised over time under defined standards.
Which means outstanding balances appear as liabilities on the balance sheet.
Large retailers disclose these balances in financial reporting.
Prepaid cards versus gift cards
Open-loop cards usable anywhere differ legally from store-specific cards.
Which have different fee rules and protections.
Purchase and activation fees are permitted on open-loop cards within limits.
Lost cards
Replacement depends on whether the card was registered.
Which is why registration where offered is worthwhile.
Unregistered physical cards are generally treated like cash.
Charitable and reward use
Widely used in incentive programmes and fundraising.
Which is a substantial commercial channel.
The practical rules
Redeem promptly, register where possible, check packaging integrity, and never pay anyone who demands one.
Why retailers like them
Cash upfront, a proportion never redeemed, and recipients who spend more than the card value when they do.
All three are documented and together explain why the category receives so much promotional attention.
The one rule that matters most
Anyone who asks to be paid in gift cards is running a fraud. No exceptions, no legitimate uses.
Where the protections are
Federal law sets minimum expiry periods and limits inactivity fees, with additional state protections in many places.
Which are published by consumer protection agencies.
Unclaimed property programmes allow some expired balances to be recovered from the state.
The four practical rules
Redeem promptly, check packaging, register where offered, and never pay anyone who demands one.
A closing thought
Prepaid retail value is a genuinely good business — cash upfront, a portion never claimed, and recipients who spend beyond it.
For the holder it is a claim on a company that may not be there, which is why redeeming promptly is the whole of the advice.
For the giver
Choose a retailer the recipient actually uses, keep the receipt, and note the card number separately.
Which addresses the three most common problems: an unwanted retailer, a lost card and a disputed balance.
Cards for retailers in visible financial difficulty carry an obvious additional risk.
The last word
Treat a gift card as money you have already spent at a specific shop, because that is exactly what it is.
Redeeming it promptly converts a claim into goods, which is the only reliable way to realise its value.
A card sitting in a drawer is an interest-free loan to a retailer.