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Gift card

A gift card is a prepaid card, code, or digital device issued on a stored-value basis, entitling the recipient to purchase specified goods or services from the issuer or affiliated entities up to the loaded amount, functioning as a cash alternative redeemable primarily for personal, family, or household purposes.^[1]^[2] Originating in the United States with the first mass-marketed plastic versions launched by Blockbuster Video in 1994—building on earlier paper certificates from department stores—gift cards evolved from niche retail promotions into a dominant gifting mechanism, surpassing traditional presents in popularity by the early 2000s due to their flexibility and reduced risk of mismatched gifts.^[3]^[4] The global market has expanded rapidly, with U.S. revenues forecasted at $447.1 billion in 2025 and worldwide values projected to exceed $1.2 trillion in the same year, driven by e-commerce integration and digital variants that enable instant delivery via email or apps; physical cards remain common for in-store activation, while reloadable general-use prepaid cards offer broader utility akin to debit instruments.^[5]^[6]^[2] Despite their convenience, gift cards carry inherent risks and economic implications: issuers profit substantially from "breakage," the unredeemed balances (often 1-10% of total value) that forfeit to retailers rather than consumers, yielding billions in unspent revenue annually; federal regulations under the 2009 CARD Act mandate at least five-year expiration periods and restrict dormancy fees to preserve value, yet scams exploiting anonymity—such as thieves scraping activation codes or coercing purchases for fraud—have led to millions in consumer losses, with the FTC documenting over $79 million in reported gift card-related fraud by 2019 and ongoing vulnerabilities in retail displays amplifying theft.^[7]^[8]^[9]^[10]

History

Origins in Paper Certificates

The earliest precursors to contemporary gift cards were paper-based gift certificates, introduced by retailers in the late 19th century as a means to offer flexible store credit for merchandise purchases. One of the first documented instances occurred in 1888, when the Marquette Trading Company in Marquette, Michigan, began issuing such certificates, allowing recipients to select items independently and addressing common gifting challenges like mismatched sizes or preferences.^[11] These documents typically consisted of printed or handwritten vouchers specifying a monetary value redeemable solely at the issuing merchant, functioning as a non-refundable promise of equivalent goods rather than cash.^[11] By the early 20th century, paper certificates had evolved into standardized forms used by various retailers, particularly for seasonal promotions and employee incentives, though widespread adoption among major department stores solidified in the 1930s.^[12] Retailers valued them for generating deferred sales and customer loyalty, as certificates encouraged return visits and often resulted in additional spending beyond the stated value due to recipients' tendency to supplement with personal funds. However, their paper format made them vulnerable to loss, damage, and rudimentary forgery, limitations that persisted until technological advancements in printing exacerbated counterfeiting risks in later decades.^[3] Despite these drawbacks, paper certificates established the core principle of prepaid, recipient-directed retail value, laying the groundwork for subsequent innovations in stored-value instruments.^[13]

Emergence of Plastic and Stored-Value Cards

The transition from paper-based gift certificates to plastic stored-value cards addressed vulnerabilities such as counterfeiting, which became prevalent with the advent of affordable color copiers and printers in the early 1990s. Retailers sought durable alternatives that could securely hold prepaid value, leading to the development of plastic cards embedded with magnetic stripes for electronic balance storage and point-of-sale (POS) activation.^[14]^[15] In 1994, Blockbuster Entertainment introduced the first widely available plastic gift card, a multi-purpose stored-value instrument that remained valueless until activated at checkout, thereby minimizing fraud risks during distribution. This innovation marked a pivotal shift, as the card's magnetic stripe enabled merchants to load and track funds electronically rather than relying on manual voucher redemption.^[11]^[3]^[15] Neiman Marcus concurrently claimed to be the first retailer to offer such plastic gift cards for sale that year, though Blockbuster's model emphasized the stored-value mechanism to combat the era's forgery issues.^[3] By the mid-1990s, the technology proliferated, with magnetic stripe-equipped plastic cards becoming standard for closed-loop systems limited to specific retailers. These cards stored monetary value directly on the stripe, readable by POS terminals for deductions, which streamlined transactions and reduced administrative burdens compared to paper equivalents.^[16]^[17] Open-loop variants, usable across networks like Visa or Mastercard, emerged around the same period, expanding versatility but introducing regulatory scrutiny over money laundering risks.^[17] Adoption accelerated due to the cards' durability, portability, and integration with existing retail infrastructure, setting the stage for gift cards to supplant traditional certificates by the early 2000s.^[4]

Shift to Digital and Mobile Formats

The emergence of digital gift cards occurred in the early 2000s, as retailers began offering electronic versions deliverable via email, marking an initial departure from physical formats.^[16] This format gained prominence in the late 2000s and throughout the 2010s, driven by the proliferation of smartphones and e-commerce platforms that enabled instant purchase and delivery.^[16] By the late 2000s, major retailers integrated digital options into mobile apps and email systems, facilitating broader accessibility without the logistical constraints of printed or plastic cards.^[11] Adoption accelerated exponentially in the early 2010s alongside rising smartphone penetration, which allowed consumers to store and redeem gift card values directly on devices.^[4] Mobile gift cards, often integrated with digital wallets and retailer apps, further streamlined usage by enabling barcode scanning or NFC-based redemption at points of sale.^[18] As of 2023, digital gift cards constituted 34% of the total market, reflecting a 7% year-over-year increase in sales volume.^[19] This segment has sustained rapid growth, with a reported 17.1% year-over-year adoption rate attributed to enhanced convenience and immediacy.^[20] A pivotal milestone arrived in the first half of 2024, when digital gift cards surpassed physical ones in market share for the first time, capturing 52% of sales amid a 17.1% surge from prior periods.^[21] This shift reflects broader retail trends toward digital payments, with approximately 58% of active mobile phone users expressing interest in device-based redemption for gift cards and related transactions.^[18] Projections indicate the digital gift card market will expand at a compound annual growth rate of 8% from 2023 to 2028, reaching $115.3 billion globally, fueled by reduced production costs, lower fraud risks through tokenized values, and seamless integration with online shopping ecosystems.^[20] Retailers benefit from higher redemption rates and breakage minimization, as digital formats eliminate loss or expiration barriers inherent in physical cards.^[22]

Types and Functionality

Physical Gift Cards

Physical gift cards are tangible prepaid stored-value instruments, typically issued by retailers or brands in the form of plastic or paper cards preloaded with a fixed monetary amount for use as payment at affiliated locations.^[23] Unlike digital variants, they require physical possession and presentation during transactions, often scanned via barcode or magnetic stripe at point-of-sale terminals.^[24] These cards emerged as an evolution from paper certificates, gaining prominence with the adoption of durable materials enabling mass production and distribution.^[25] Construction of physical gift cards predominantly utilizes polyvinyl chloride (PVC) plastic for durability, with thicknesses around 0.76 mm to resist bending or tearing, though sustainable alternatives like Invercote paperboard from renewable sources are increasingly available.^[26] Premium versions employ offset printing on a thin clear PVC laminate for enhanced visual appeal and longevity, while budget options may use roll lamination or simple paper stock for short-term use.^[27] Customization includes full-color designs, foil stamping, or spot UV coating, often sized to standard credit card dimensions for compatibility with wallets.^[28] Security measures on physical gift cards incorporate tamper-evident packaging, holographic elements, unique serial numbers, and protective coatings over PIN codes to deter fraud such as card draining before purchase.^[29] Retailers recommend inspecting cards for signs of tampering, like damaged seals or altered PIN areas, and activating them only at trusted points of sale with real-time backend verification.^[30] Advanced features may include geolocation tracking for suspicious redemptions and RFID-blocking recommendations for storage to prevent unauthorized scanning.^[31] Activation occurs at the time of purchase, linking the card's unique identifier to the loaded value via retailer systems, after which redemption involves presenting the card in-store for deduction of the purchase amount.^[32] Approximately 56% of physical gift cards are redeemed within six months of issuance, though risks of loss or theft can lead to unredeemed balances, contributing to industry breakage rates.^[33] Their tangible nature supports impulse gifting and in-person exchanges but introduces logistical challenges like shipping delays and vulnerability to physical damage.^[34]

Virtual and Mobile Gift Cards

Virtual gift cards, also known as e-gift or digital gift cards, are prepaid instruments delivered electronically via email, text message, or app notifications, consisting of a unique alphanumeric code that represents stored monetary value redeemable at designated retailers or services.^[35] Unlike physical cards, they require no tangible medium, enabling instant issuance and delivery without production, shipping, or handling costs associated with plastic alternatives.^[36] Recipients activate the code during online checkout by entering it manually or, in physical stores, by presenting it for scanning, deducting the used amount from the balance while preserving any remainder for future transactions.^[37] Mobile gift cards build upon virtual formats by integrating directly into smartphone digital wallets, such as Apple Wallet or Google Pay, where they function as virtual passes with scannable barcodes or near-field communication (NFC) capabilities for seamless in-store redemption.^[38] Users add the card via a provided link or code, storing it securely on the device for quick access, often with lock-screen notifications or automated reminders to encourage usage; for instance, direct-to-consumer apparel brands may issue them as promotional rewards, surfacing the balance prominently to drive repeat purchases.^[39] This integration supports contactless payments, reducing friction compared to manual code entry, though compatibility depends on the merchant's point-of-sale systems supporting wallet protocols.^[40] The distinction between virtual and mobile variants lies primarily in accessibility and usability: virtual cards emphasize code-based delivery suitable for broad digital channels, while mobile variants prioritize app-based storage for enhanced portability and security features like device encryption, minimizing risks of loss or unauthorized access inherent to emailed codes.^[41] Both formats have propelled market expansion, with digital gift cards—including virtual and mobile—growing from $493.12 billion in 2024 to a projected $581.38 billion in 2025 globally, driven by e-commerce adoption and reduced operational overheads that lower issuer costs by up to 50% relative to physical cards.^[42]^[20] Adoption surged post-2020 due to accelerated digital payment shifts, with U.S. digital gift card volumes comprising over 20% of the $216.9 billion total gift card market in 2024.^[18]

Closed-Loop versus Open-Loop Distinctions

Closed-loop gift cards, also known as single-load or proprietary cards, are prepaid instruments issued by a specific retailer or a limited network of affiliated merchants, redeemable solely for goods or services from the issuer or its partners.^[43] These cards enhance brand loyalty by channeling spending back to the issuer, as recipients must shop within the designated ecosystem, such as a Starbucks card usable only at Starbucks locations or a Target card restricted to Target stores.^[44] Retailers benefit from greater control over the transaction process, including lower processing costs and data collection on customer preferences, without reliance on external payment networks.^[45] Open-loop gift cards, conversely, operate on general-purpose payment networks such as Visa, Mastercard, or American Express, enabling redemption at any merchant accepting those networks, akin to a debit card.^[46] This broader usability provides recipients with flexibility, allowing purchases across diverse retailers, restaurants, or online platforms, which suits givers seeking versatility over specificity.^[47] However, open-loop cards typically involve higher issuance and transaction fees paid to network providers, and issuers have less direct influence over where funds are spent.^[48] The core distinctions between the two revolve around redemption flexibility, issuer control, and economic incentives: closed-loop systems prioritize captive spending to drive repeat visits and incremental sales—evidenced by Starbucks' 2022 reporting of billions in stored value from such cards boosting engagement—while open-loop systems emphasize convenience but dilute brand-specific retention.^[44] ^[49] In the U.S. market, closed-loop cards commanded a 62.3% share in 2024, reflecting retailers' preference for proprietary programs amid rising e-commerce integration.^[50] Globally, closed-loop segments are projected to hold around 64% by 2035, fueled by anti-fraud features and loyalty program synergies.^[51] Semi-closed or hybrid variants exist, blending elements like usability at a retailer's partners, but remain less prevalent than pure forms.^[52]

Integration with Store Credit Systems

Retailers commonly integrate gift cards with store credit systems by issuing store credit in the form of physical or digital gift cards, enabling unified tracking, redemption, and balance management through point-of-sale (POS) and e-commerce platforms.^[53]^[54] This approach treats store credit as a restricted stored-value instrument, often leveraging the same backend infrastructure as gift cards to simplify operations and reduce administrative overhead.^[55] In return and refund processes, integration facilitates converting cash-eligible refunds into store credit via gift card issuance, particularly for no-receipt returns or after the cash refund window closes, which helps retain customer spending within the retailer's ecosystem.^[54]^[56] POS systems from providers like Square and Lightspeed support this by allowing staff to generate gift card codes for store credit directly at checkout, with balances syncing across in-store, online, and mobile channels to prevent discrepancies and enable omnichannel redemption.^[55]^[57] While store credit differs from traditional gift cards in being non-transferable and tied to specific return transactions, retailers often use gift card platforms to implement it due to shared features like barcode scanning for redemption and automated balance updates.^[56] E-commerce extensions, such as those for Magento 2, automate store credit issuance linked to return merchandise authorization (RMA) workflows, ensuring compatibility with POS data for consistent in-store application.^[54] This integration complies with U.S. regulations under the CARD Act of 2009, which mandates clear disclosure of any expiration policies—typically allowing dormancy fees after one year of inactivity but prohibiting immediate expirations for store-specific credits.^[58] Such systems enhance retailer control over liabilities, as unused store credit issued via gift cards contributes to breakage revenue—estimated at 1-2% of total gift card liability annually across the industry—while encouraging repeat visits without the outflow of cash.^[59] For instance, platforms like Return Prime convert refunds to store credit to boost loyalty, reporting higher retention rates compared to cash refunds, though exact figures vary by policy implementation.^[56] Overall, this convergence streamlines fraud prevention through centralized auditing and supports data analytics on redemption patterns to inform inventory and marketing strategies.^[60]

Economic Dimensions

Global Market Size and Growth Trends

The global gift card market, encompassing the total value loaded onto physical, virtual, and mobile formats, reached approximately USD 1.10 trillion in 2024.^[61] This figure reflects the aggregate face value of cards issued by retailers, financial institutions, and digital platforms worldwide, driven primarily by seasonal gifting during holidays and integration with e-commerce ecosystems. Alternative estimates place the 2024 market at USD 1.21 trillion, highlighting variability in methodologies across research firms but confirming a scale exceeding USD 1 trillion annually.^[62] Market growth has accelerated post-2020, with compound annual growth rates (CAGRs) ranging from 9% to 16% in recent projections. For instance, from 2024 to 2025, the market is forecasted to expand to USD 1.24 trillion, representing a year-over-year increase of about 13%.^[61] Over longer horizons, CAGRs of 12.5% to 14.2% are anticipated through 2032-2034, propelled by rising adoption of digital gift cards, which comprised over 40% of issuance in mature markets by 2024 due to convenience and reduced production costs.^[63] ^[64] Key drivers include e-commerce penetration in emerging economies, partnerships between retailers and payment processors, and the normalization of non-cash gifting habits post-pandemic, though growth is tempered by economic pressures on consumer spending.^[65] Projections indicate the market could surpass USD 3.8 trillion by 2034, with digital formats leading expansion amid smartphone ubiquity and blockchain-based secure issuance.^[61] Regional trends show North America and Europe dominating with over 50% share in 2024, fueled by established retail networks, while Asia-Pacific exhibits the highest growth potential at CAGRs above 15%, attributed to urbanization and fintech innovations in countries like China and India.^[62] These trajectories assume sustained retail recovery and minimal regulatory disruptions, though discrepancies in forecasts underscore the influence of definitional differences, such as inclusion of breakage revenue versus gross load value.^[63]

Redemption Dynamics and Breakage Profits

Gift card redemption typically occurs gradually over time, with industry data indicating that approximately 56-57% of cards are redeemed within the first six months of issuance.^[33]^[66] This pattern reflects consumer behavior where recipients prioritize high-value or preferred cards shortly after receipt, often during post-holiday shopping periods, while lower-value or less appealing cards linger unused. Digital gift cards redeem faster, averaging around 17 days compared to physical cards, due to ease of access via apps and online platforms.^[66] Redemption rates have declined post-pandemic, with average unused balances rising 30.5% from 2023 to 2024, signaling delayed or abandoned usage amid economic pressures and shifting spending habits.^[5] Breakage refers to the portion of gift card balances that remain perpetually unredeemed, which retailers recognize as revenue under accounting standards like ASC 606 once redemption becomes remote, typically estimated at 10-19% of total issued value based on historical patterns.^[67] This breakage generates pure profit for issuers, as funds are received upfront without corresponding cost of goods sold until redemption, with U.S. consumers leaving an estimated $21 billion unspent across all cards as of 2023.^[68] Retailers like Starbucks have capitalized significantly, reporting $1.77 billion in unredeemed balances in 2024—a 9% year-over-year increase—and $212 million in breakage revenue for 2022 alone.^[69]^[70] Breakage rates vary by retailer and card type, often ranging from 2-4% of annual sales when recognized, but cumulative unredeemed liabilities can exceed billions industry-wide, enhancing margins without additional marketing or inventory costs.^[71]^[72] The economic mechanics of breakage hinge on deferred liability accounting: upon sale, revenue is deferred as a liability, with breakage accreted proportionally to redemptions to avoid overstatement.^[73] This model incentivizes gift card programs, as unredeemed funds provide interest-free capital for retailers, often yielding higher returns than traditional sales where costs are immediate. For instance, in 2017, multiple large firms derived over $20 million each from breakage, underscoring its role in bolstering profitability amid competitive retail environments.^[74] However, estimates rely on predictive models of dormancy, which can introduce variability if consumer redemption accelerates due to reminders or economic stimuli.^[73] Overall, breakage constitutes a structural advantage in the gift card ecosystem, transforming potential consumer value into retailer equity with minimal regulatory constraints in most jurisdictions.^[72]

Influence on Retail Sales and Consumer Expenditure

Gift cards significantly augment retail sales by generating upfront revenue from their issuance, often during peak periods like holidays, while redemptions typically involve additional consumer spending beyond the card's face value. In the United States, gift card sales reached approximately $308 billion in 2024, reflecting a 45% increase over the prior four years and outpacing broader retail spending trends. During the 2023 holiday season, total gift card value sold rose 12.36% year-over-year, underscoring their role in driving seasonal revenue spikes for retailers. Empirical observations indicate that a substantial portion of redemptions—61% of consumers in one analysis—exceed the card's value, with recipients averaging $31.75 in extra expenditure, thereby converting deferred liabilities into immediate sales uplift.^[75]^[76]^[77]^[78] From a consumer expenditure perspective, gift cards promote higher overall outlays through behavioral mechanisms such as reduced price sensitivity at redemption and the tendency to "top up" balances. Surveys reveal that 68% of recent redeemers spent more than their card's value in the preceding year, while two-thirds of shoppers consistently exceed the amount in general usage patterns. This overspending effect, documented across multiple datasets, stems from the psychological framing of gift cards as "free money," leading to less elastic demand and incremental purchases not otherwise made with cash equivalents. Retailers benefit from this as gift cards channel expenditure toward their stores, increasing basket sizes and foot traffic; for instance, studies of casual dining chains show targeted purchase behavior shifts upon redemption.^[79]^[80]^[81] However, the net influence on aggregate consumer expenditure remains modulated by factors like redemption rates and economic conditions. While gift cards facilitate spending in uncertain environments— with 81% of consumers purchasing them in the past year amid inflation pressures—unredeemed balances (breakage) effectively reduce realized expenditure without corresponding goods delivery, though this accrues as pure profit to issuers rather than consumer outlay. In inflationary contexts, such as 2024, consumers increasingly allocated gift cards toward essentials, sustaining retail volumes but potentially substituting for direct cash spending elsewhere. These dynamics highlight gift cards' role in stabilizing retailer cash flows while subtly elevating per-transaction expenditure, supported by consistent empirical patterns across retail sectors.^[82]^[83]

Usage Patterns

Common Gifting and Redemption Practices

Gift cards are frequently selected as presents for birthdays, which account for 77% of gift card purchases, followed by holidays such as Christmas, Hanukkah, or Kwanzaa at 63%.^[84] Other common gifting events include Mother's Day, Father's Day, anniversaries, graduations, and baby showers, where the flexibility of allowing recipients to choose their preferred items or experiences proves advantageous.^[85] In the United States, 64% of consumers purchase gift cards specifically as holiday gifts, with 72% of those buyers preferring them to enable recipient choice over predefined items.^[5] This preference stems from their convenience, cited by 50% of consumers as a primary reason for selection in 2023.^[86] Gifting practices often involve physical cards handed directly or mailed, while digital variants are emailed or shared via mobile apps for immediate delivery, particularly for last-minute or remote occasions.^[20] Recipients typically redeem gift cards at point-of-sale terminals in physical stores by scanning barcodes or magnetic stripes, or online by entering unique codes during checkout, with balances preserved for future partial uses.^[87] Over 90% of redeemed gift cards are activated within one month of receipt, reflecting prompt usage aligned with gifting intents like immediate holiday or birthday spending.^[88] Redemption rates average around 90%, though approximately 10% remain unredeemed, contributing to retailer breakage income.^[89] Practices emphasize ease, with many programs integrating with loyalty apps for seamless tracking and notifications of balances, encouraging full utilization.^[90] During peak seasons, such as holidays, redemption surges, often exceeding initial values through additional consumer spending.^[91]

Emergence of Gift Card Collecting

Gift card collecting emerged as a niche hobby in the early 2000s, coinciding with the mass production and distribution of plastic physical gift cards following their invention in 1994 by retailers like Blockbuster and Neiman Marcus.^[3] Initially driven by enthusiasts appreciating the cards' varied designs, branding, and materials—often from defunct stores or limited-edition promotions—the practice involved acquiring unused, zero-balance, or expired cards as memorabilia rather than for monetary value. Early interest was documented in online forums as far back as 2008, where collectors shared discoveries of dedicated websites and swapped cards for completeness in sets by retailer, country, or theme.^[92] The hobby gained formal recognition in the mid-2010s through Guinness World Records entries, highlighting its growth from solitary pursuits to organized collecting. In 2014, brothers Aaron and David Miller from New Rochelle, New York, established a record with a collection exceeding 20,000 unique gift cards sourced globally, emphasizing diversity in issuers and aesthetics over activation status.^[93] Subsequent attempts, such as Ben Hess's 2016 effort to surpass the mark with zero-value cards, underscored a focus on verifiable uniqueness and condition, often verified through serial numbers or holograms.^[94] Online communities facilitated the hobby's expansion, with platforms like Colnect hosting dedicated forums for trading and cataloging gift cards by the 2010s, attracting participants interested in historical retail ephemera.^[95] Collectors prioritize rarity, such as cards from obsolete chains or international variants, with one documented assemblage reaching 40,808 distinct items from 72 countries by 2019.^[96] Unlike trading card hobbies tied to speculative value, gift card collecting remains low-stakes, centered on preservation and personal curation amid the shift toward digital formats that reduced physical availability post-2010s.^[97]

Advantages

Retailer Benefits from Gift Card Programs

Gift card programs enable retailers to secure upfront cash inflows without immediate fulfillment obligations, improving liquidity and allowing funds to be invested in inventory or operations prior to redemption. Upon sale, retailers receive full payment, which contrasts with traditional credit sales by deferring revenue recognition under accounting standards like ASC 606 until redemption or estimated breakage, yet providing immediate capital. This mechanism has contributed to U.S. gift card sales reaching approximately $308 billion in 2024, representing a 45% increase over the prior four years and underscoring their role in bolstering retailer cash positions.^[98] Retailers benefit from incremental sales upon redemption, as recipients frequently exceed the card's face value in spending, driven by the psychological commitment of pre-paid funds that encourages additional purchases to utilize balances. Empirical analysis of a major U.S. department store's promotions revealed that gift cards elevate customer purchase frequency and basket size, with promotional incentives amplifying these effects through delayed gratification and perceived value. Industry data indicates that 37% of consumers spend beyond the card amount, yielding extra revenue per transaction, while gift cards can constitute 1-4% of total revenue for small businesses through such uplift.^[99]^[100] Breakage, or unredeemed balances, generates pure profit for retailers after applicable escheatment periods, with historical rates estimated at 10-19% of issued value based on patterns across issuers. For instance, Starbucks reported $1.77 billion in unredeemed balances in fiscal 2023, reflecting a 9% year-over-year rise and direct contribution to earnings once recognized proportionally with redemptions. Accounting for breakage involves estimating non-redemption probabilities from historical data, enabling revenue accrual without corresponding costs, though rates vary by retailer and must comply with state unclaimed property laws to avoid underestimation risks.^[67]^[69] Strategically, gift cards facilitate customer acquisition by serving as gifting vehicles that draw non-customers into stores or digital platforms, converting recipients into repeat buyers via introductory exposure. Programs integrated with promotions or partnerships expand reach, with evidence showing they enhance brand visibility and entry into loyalty ecosystems, as recipients often redeem in ways that prompt further engagement. This acquisition dynamic, combined with retention from redemption habits, positions gift cards as a low-cost tool for expanding customer bases amid competitive retail landscapes.^[101]^[98]

Consumer Conveniences and Economic Efficiencies

Gift cards afford recipients greater flexibility in selecting merchandise or services aligned with their preferences, mitigating the inefficiencies inherent in traditional in-kind gifts where donor-recipient preference mismatches often result in suboptimal utility or resale efforts.^[102] This choice-based mechanism reduces the deadweight loss associated with gifting, as empirical analyses indicate that recipients derive higher satisfaction from the autonomy to allocate value toward personally valued items rather than predefined objects.^[103] For givers, the standardized denominations and wide availability simplify procurement without necessitating intimate knowledge of the recipient's tastes, streamlining the gifting process across occasions such as holidays or employee incentives.^[104] Digital variants further enhance convenience through instantaneous electronic delivery, enabling remote or time-sensitive gifting without physical handling or shipping delays, a feature increasingly utilized amid economic pressures where shoppers prioritize versatile, low-effort options.^[105] From an economic standpoint, gift cards function as pre-committed spending instruments that assist consumers in managing budgets by capping expenditure at the loaded value, thereby promoting disciplined allocation during inflationary periods or personal financial constraints.^[106] Surveys reflect this utility, with approximately 90% of consumers favoring gift cards over other rewards due to their perceived flexibility and control over spending decisions.^[107] Such instruments also minimize transaction frictions compared to cash equivalents, as recipients avoid the risks of loss or theft while benefiting from retailer-specific incentives that amplify effective purchasing power without additional outlay.^[108]

Risks and Criticisms

Prevalence of Fraud and Scam Exploitation

Gift card fraud and scams represent a significant vulnerability in the payments ecosystem, with U.S. consumers reporting $217 million in losses to gift card-related schemes in 2023, contributing to the Federal Trade Commission's (FTC) record $10 billion in total scam losses that year.^[109] This figure marked an increase from $148 million in 2021, reflecting a rising trend driven by the cards' ease of use and irreversibility.^[110] Preliminary data for 2024 indicate further escalation, with estimated losses reaching $250 million, as scammers exploit the anonymity and rapid drainability of balances.^[111] Reports to the FTC surged, with nearly 40,000 consumers citing gift cards as a scam payment method in late 2021 alone, and median losses per victim rising from $700 in 2018 to $1,000 by mid-2021.^[112] Scammers frequently impersonate trusted entities such as government agencies, tech support, or family members in distress to coerce victims into purchasing and sharing gift card codes via phone, email, or text.^[113] For instance, fraudsters posing as IRS officials or Amazon representatives demand immediate payment in gift cards to resolve fabricated issues, with urgency preventing verification; victims reveal PINs or claim codes, allowing instant balance depletion.^[114] Family emergency variants involve spoofed calls claiming a relative's arrest or accident, requesting funds wired through cards like Google Play or iTunes, which are then resold on secondary markets.^[115] These social engineering tactics exploit trust, with the FTC noting that high-value losses—over $5,000—rose from 8% of reports in 2018 to 14% by 2021.^[116] Physical and digital tampering amplifies exploitation, as criminals remove cards from retail displays, record serial numbers and PINs, reseal packaging, and return them for legitimate purchase by unsuspecting buyers whose balances are later drained online.^[117] Card draining at point-of-sale terminals or via hacked retailer databases enables unauthorized redemptions, while stolen credit cards fund illicit gift card buys for laundering.^[118] U.S. Immigration and Customs Enforcement reported in 2025 that such methods, including victim-assisted fraud where individuals are tricked into loading cards, have proliferated amid e-commerce growth, with fraudsters favoring brands like Apple and Amazon for their liquidity on black markets.^[119] Better Business Bureau studies confirm heightened reports in 2023 over 2022, underscoring retailers' innovations like tamper-evident packaging as partial mitigations amid persistent vulnerabilities.^[120]

Issues with Fees, Expiration, and Non-Redemption

Gift cards are subject to various fees that can erode their balance without consumer activity. Activation fees, typically $2 to $6, are often deducted at purchase to cover issuance costs.^[121] Dormancy or inactivity fees, which apply for non-use, are restricted under the U.S. Credit CARD Act of 2009 to no earlier than one year after activation, with clear disclosure required on the card.^[8] Service or maintenance fees may also apply monthly after the dormancy period, potentially reducing balances to zero if unchecked. Consumer complaints to the Consumer Financial Protection Bureau highlight instances of premature or undisclosed fee impositions, such as a $4 dormancy charge applied before the one-year threshold.^[122] These fees disproportionately affect infrequent users, transforming intended gifts into diminished assets. Expiration provisions further complicate value retention, as balances become inaccessible after a set period. Federal law prohibits expiration before five years from activation for most general-use prepaid cards, aiming to prevent rapid obsolescence.^[8] Store-specific or closed-loop cards may have varying state rules, but non-disclosure of dates has led to unexpected losses, with some retailers historically applying short terms before regulatory crackdowns.^[121] In practice, expiration contributes to breakage when combined with forgetfulness or logistical barriers, as evidenced by cases where vouchers lapsed after failed redemption attempts within the validity window.^[123] Non-redemption, known as breakage, accounts for significant unredeemed balances, yielding profits for issuers while imposing losses on holders. As of 2023, Americans held approximately $21 billion in unused gift card value, with about 6% of cards never activated.^[68]^[74] Surveys indicate 43% of U.S. adults possess at least one unused card, averaging $244 per person, often due to misplacement, partial spending inertia, or preference mismatches.^[124] Breakage rates vary by issuer; for instance, Starbucks reported $1.77 billion in unredeemed balances in 2023, up 9% year-over-year.^[69] Unlike bank accounts, gift card funds are typically exempt from escheatment to states as unclaimed property, allowing retailers to retain the value indefinitely.^[125] This dynamic has drawn criticism for incentivizing low redemption through opaque terms or high minimum spends, though issuers argue it offsets fraud and operational costs.^[7]

Debates on Economic Waste and Inefficiency

Gift card programs generate significant breakage, defined as the portion of issued cards that remains unredeemed, allowing retailers to recognize the unspent balances as revenue after applicable dormancy periods. Estimates of breakage rates vary, with industry analyses indicating typical figures of 2-4% for many programs, though some reports cite ranges up to 10-19% depending on card type and retailer. In the United States, collective unspent gift card balances reached approximately $21 billion as of early 2023, representing funds transferred from consumers to retailers without corresponding goods or services delivered.^[126]^[72]^[67] Economists debate whether this breakage constitutes economic waste or inefficiency, often framing it within the broader context of deadweight loss in gifting. Proponents of inefficiency argue that non-redemption creates a pure transfer of value from gift recipients (who forfeit utility) to retailers (who retain funds without fulfilling obligations), exacerbating deadweight loss beyond that of cash gifts; one study estimated this loss at over 14% of gift card value, nearly double the average for traditional presents. This arises causally from recipient inertia, loss or forgetting of cards, or deliberate non-use due to category restrictions on closed-loop cards, leading to suboptimal resource allocation where the original purchaser's expenditure fails to maximize recipient welfare. Critics of gift cards, including figures like Joel Waldfogel, extend this to contend that even redeemed cards impose mismatch costs if the recipient would prefer alternatives unavailable within the issuer's offerings, rendering the mechanism less efficient than direct cash transfers.^[102]^[127] Counterarguments emphasize that gift cards mitigate rather than amplify inefficiency compared to physical gifts, which suffer higher deadweight loss from valuation mismatches (often 10-20% or more), by allowing recipients greater choice within predefined options. Breakage, in this view, functions as an implicit subsidy to retailers, providing interest-free float upon issuance—enhancing liquidity and enabling reinvestment—while the overall system incentivizes spending, as evidenced by higher redemption-driven purchases than equivalent cash equivalents in some empirical observations. Retailers like Starbucks reported $1.77 billion in unredeemed balances in 2024, yielding breakage revenue that bolsters profitability without eroding consumer trust, given high overall redemption rates (around 94% nationally). From a causal standpoint, this retained value circulates back into the economy via retailer operations, potentially offsetting any localized waste, though skeptics note it distorts incentives by rewarding non-delivery of value.^[128]^[74]^[69] These debates highlight tensions between gifting's social signaling benefits—which may justify some inefficiency for relational gains—and pure economic efficiency, where unredeemed funds represent forgone utility without compensatory output. Empirical data underscores variability: while aggregate breakage generates billions in retailer income (e.g., select firms netting over $20 million annually in 2017), it also prompts consumer losses averaging $175 per person in unused balances as of 2022. Regulatory constraints on expiration and fees in jurisdictions like the U.S. aim to curb extreme waste, yet persistent non-redemption suggests inherent frictions in deferred consumption mechanisms.^[126]^[74]^[68]

Regulatory Landscape

United States Federal and State Rules

In the United States, federal regulation of gift cards primarily stems from the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which took effect on August 20, 2010, and applies to gift certificates, store gift cards, and general-use prepaid cards.^[1] This law prohibits issuers from imposing expiration dates on such products for less than five years from the date of issuance or activation, whichever is later, ensuring funds remain accessible for that minimum period.^[129] Exceptions include loyalty, award, or promotional incentive cards with nominal value; cards redeemable solely for admission to events or related merchandise; and certain telecommunications or technology cards.^[1] The CARD Act also restricts dormancy, inactivity, or service fees, permitting them only after at least 12 months of inactivity and only if the fee does not reduce the balance below the original issued amount (or last reloaded amount) without prior 12-month inactivity.^[129] Issuers must disclose all such fees clearly and conspicuously on the card, certificate, or accompanying packaging, including the amount, conditions for imposition, and a toll-free telephone number or website for balance inquiries.^[130] No fees may be charged for card replacement or balance information provision.^[129] The Federal Trade Commission (FTC) enforces these provisions under the Consumer Financial Protection Bureau's oversight for certain aspects, while emphasizing consumer education on avoiding gift card scams, such as demands for payment via gift card codes.^[10] State laws supplement federal requirements, with all 50 states and the District of Columbia having enacted statutes governing gift cards, often aligning with or exceeding CARD Act standards to address fees, disclosures, and escheatment of unused balances.^[131] For instance, states like California prohibit dormancy fees entirely on gift cards and require escheatment of abandoned funds to the state after three years of inactivity.^[131] New York bans expiration dates outright for most gift cards, while Texas mandates clear fee disclosures and limits inactivity fees to after one year.^[132] Approximately 40 states restrict or ban inactivity fees beyond federal limits, and many require prominent disclosure of terms on packaging or receipts.^[131] Escheatment rules vary, with unused balances typically reverting to state unclaimed property funds after 1–5 years of dormancy, depending on jurisdiction, to prevent permanent forfeiture to issuers.^[131] These state frameworks aim to mitigate "breakage"—the non-redemption of balances—while federal law provides a uniform baseline.^[133]

Canadian Provincial Frameworks

In Canada, gift card regulations fall under provincial jurisdiction, with no overarching federal consumer protection law specifically governing expiry dates, fees, or redemption for most retail gift cards.^[134] Provinces generally prohibit expiry dates on standard gift cards to prevent value erosion, though exceptions apply to promotional, charitable, or closed-loop cards tied to specific services like telecommunications.^[134] Fees such as dormancy or inactivity charges are restricted or banned in most jurisdictions to ensure full redeemability, but requirements for balance inquiries and receipts vary.^[135] Ontario's Consumer Protection Act, amended effective March 14, 2014, bans expiry dates on most retail gift cards, allowing redemption of full value indefinitely unless the card is promotional or for a specific event.^[136] Further amendments under the 2023 Consumer Protection Act clarify that electronic gift cards also cannot expire and prohibit non-disclosure fees exceeding the card's terms, with suppliers required to provide balance checks upon request.^[137] Replacement fees for lost cards are permitted but capped.^[136] In British Columbia, the Business Practices and Consumer Protection Act, updated with regulations effective November 1, 2008, defines "prepaid purchase cards" and prohibits expiry dates and user fees for most gift cards, ensuring validity until fully redeemed.^[138] Exceptions include cards for unlimited services like transit passes; issuers must disclose any limited redemption periods at purchase, and balance information must be accessible without charge.^[135] Alberta's rules under the Fair Trading Act stipulate no expiry dates or fees that diminish gift card value over time for cards purchased in the province, including those from out-of-province retailers if redeemed locally.^[139] Suppliers must honor full value and provide proof of purchase receipts.^[140] Quebec's Consumer Protection Act, amended June 30, 2010, forbids expiry dates on prepaid cards redeemable for specific goods or services, treating non-compliant cards as having no expiry.^[141] This applies to merchant-issued cards but excludes free promotional ones or those from loyalty programs; merchants must allow partial redemptions without forcing full use in one transaction.^[142] Other provinces like Nova Scotia mirror these protections, with regulations under the Consumer Protection Act deeming impermissible expiry dates void and requiring redeemability as if undated.^[143] Manitoba, New Brunswick, and Newfoundland and Labrador similarly restrict expirations and fees, though enforcement and disclosure rules differ slightly, emphasizing consumer access to balances and prohibiting value-reducing charges.^[134] These frameworks aim to mitigate non-redemption losses estimated at billions annually across Canada, prioritizing consumer retention of purchased value over retailer breakage benefits.^[144]

Variations in International Jurisdictions

In the European Union, gift card regulations lack harmonization at the supranational level, resulting in diverse rules across member states primarily enforced through national implementations of unfair commercial practices directives. Validity periods for gift vouchers vary significantly; for example, France mandates a minimum expiration of five years from issuance to protect consumers from premature forfeiture.^[145] Other member states, such as Germany, impose a three-year minimum validity, while countries like Italy may allow shorter periods if transparently disclosed, though subject to scrutiny for fairness.^[145] Fees, including dormancy charges, are generally restricted if they erode the card's value without clear justification, with some jurisdictions prohibiting post-purchase fees altogether to prevent exploitative practices.^[145] Post-Brexit, the United Kingdom operates without statutory minimum expiration dates for gift cards, permitting issuers to set terms as short as desired provided they are prominently disclosed at purchase and comply with broader consumer rights under the Consumer Rights Act 2015, which deems hidden or unreasonable terms unenforceable.^[146] ^[147] Refunds for unused balances are not mandated unless the card is defective, though voluntary policies are common among retailers to mitigate breakage risks.^[148] Inactivity fees remain permissible if explicitly stated, contrasting with stricter EU approaches in certain states, but must not render the product illusory under unfair terms assessments.^[145] Australia's Australian Consumer Law, amended in 2019, requires gift cards issued on or after November 1, 2019, to feature a minimum three-year validity period from the later of issuance or last use, aiming to reduce non-redemption rates estimated at 10-20% prior to reform.^[149] Activation and purchase fees are allowed if reasonable and disclosed upfront, but post-activation dormancy fees are banned to preserve consumer value.^[150] Refunds for low balances (typically under AUD 10) are not automatically required, though some states like New South Wales encourage voluntary redemption policies.^[145] In other jurisdictions, such as India, gift cards often carry a one-year expiration under voluntary industry codes, though enforcement varies and lacks federal mandates comparable to Western counterparts, leading to higher forfeiture risks.^[145] Brazil's Consumer Defense Code treats gift cards as prepaid credits without fixed expiration but prohibits abusive fees, requiring full redeemability unless insolvency intervenes.^[145] These divergences reflect differing priorities: consumer protection in developed markets versus market flexibility in emerging economies, with global issuers adapting through region-specific terms to navigate VAT implications and cross-border usability constraints.^[151]

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Apr 15, 2024 · In 2023, card draining and other gift card-related fraud made up $217 million of the record $10 billion in money lost from scams nationwide ...
[110]
US Consumers Lost $148 Million to Gift Card Payment Scams in 2021
... (FTC) report. Some 40,000 consumers in the US reported gift card payment scams in the period, with median losses per individual increasing from $700 to $1,000.
[111]
Gift Card Fraud Statistics & Financial Impact for 2025
Jul 14, 2025 · What is Gift Card Fraud? $250. million. in consumer losses came from gift card scams in 2024. Source: The ...
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FTC Data Show Major Increase in Gift Cards As Scam Payment ...
Dec 8, 2021 · Nearly 40,000 consumers reported using gift cards to pay a scammer in that time frame, according to the spotlight, which draws from fraud ...Missing: prevalence | Show results with:prevalence
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Avoiding and Reporting Gift Card Scams | Consumer Advice
like Google Play, ...
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9 common gift card scams and tips to avoid them - Norton
Dec 20, 2024 · Gift card scams can begin with a phone call, email, text, or even a simple trip to the store. Discover how gift card scams work and learn ...common types of gift card scams · How to help protect against gift...
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How To Avoid The Latest Gift Card Scams - Aura
The most common type of gift card scam happens over the phone. Fraudsters call and pretend to be from a company or government agency that you know and trust, ...Imposters demanding gift card... · Charity and fundraiser scams...
[116]
Gift card scams: Out of the shadows and into the FTC Data Spotlight
Dec 8, 2021 · Losses of $5,000 or more have increased from about 8% of reports in 2018 to about 14% in the first nine months of 2021. Median reported losses ...Missing: prevalence | Show results with:prevalence
[117]
ELI5: How do scammers extract money from the gift cards they get ...
May 5, 2024 · They steal gift cards from the display rack, carefully open them, record the numbers, reseal the card envelopes and return to the store. When ...
[118]
Tackling the Rise in Gift Card Fraud - ICE
Aug 15, 2025 · This guide provides an overview of the current trends in gift card fraud, explains the methods used by criminals and outlines steps to protect against these ...
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Gift Card Fraud: What It Is & How to Stop It | Arkose Labs
5 common ways to commit gift card fraud · Physical gift card tampering · Buying gift cards with stolen credit cards · Gift card number theft · Social engineering ...<|control11|><|separator|>
[120]
Growth of gift card scams causes retailers to innovate solutions - BBB
Nov 16, 2023 · A new update to a 2021 BBB study finds that more people reported gift card fraud in 2023 compared to 2022. Consumers should be extra alert ...
[121]
[PDF] Gift Cards – Facts and Cautions Regarding a Widely Used Financial ...
Some individual retailers that issue gift cards also often invoke fees and expiration dates. Sometimes the expiration date is not indicated to the customer nor ...Missing: non- statistics
[122]
6449688 - Consumer Financial Protection Bureau
Upon further investigation I saw that the company that issued the XXXXift card, GiftCards.com, had charged a dormancy fee to the account in the amount of {$4.00} ...Missing: problems | Show results with:problems<|control11|><|separator|>
[123]
False profits and the folly of gift card expiry dates
Nov 24, 2017 · After two unsuccessful attempts to book a table within the one-year redemption period, I was told that the £250 voucher was no longer valid only ...
[124]
Survey: 43% of Americans Have At Least One Unused Gift Card
Sep 23, 2024 · More than 2 in 5 Americans have at least one gift card, gift voucher or store credit they haven't used. That's 43% of Americans who have an ...
[125]
[PDF] UNUSED GIFT CARD BALANCES SHOULD GO BACK TO ...
Gift cards go unclaimed for a variety of reasons. For consumers, it means the loss of $21 billion in unused gift cards2 collectively, and for companies, ...
[126]
Society's $21 Billion Problem - by Jadrian Wooten
Feb 27, 2023 · The main reason many economists consider gift-giving inefficient is that it can create what is known as a deadweight loss. Deadweight loss is a ...
[127]
The economics of wasteful spending: The deadweight loss of ... - PBS
or ever; it's an economic waste, says University of Minnesota economics professor Joel Waldfogel.Missing: studies | Show results with:studies
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What Can Be Done About the Inefficiencies of Giving Gifts?
Dec 26, 2014 · What Can Be Done About the Inefficiencies of Giving Gifts? The ... gift cards also suffer from deadweight loss, about 10 percent. And ...Missing: debates | Show results with:debates
[129]
12 CFR 1005.20 -- Requirements for gift cards and gift certificates.
(i) Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be ...
[130]
Credit CARD Act Requirements for Gift Certificates, Store Gift Cards ...
Section 401 of the Credit CARD Act requires disclosures for gift certificates, store gift cards, or general-use prepaid cards fees and expiration dates.
[131]
Summary Gift Cards and Gift Certificates Statutes and Legislation
A paper gift card/ gift certificate/ store gift card shall be valid for a period of not less than five years following the date of issue. Any paper gift card/ ...
[132]
Gift Card Laws: An Interactive State-by-State Guide
Gift cards cannot expire before five years from date of purchase ... All gift cards must disclose fees upon either the card itself or associated packaging ...
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Gift Card expirations under the Card Act — Blackgarden Law
Mar 23, 2025 · So, the Final Rule says that we can't issue gift certificates or store gift cards unless the underlying funds do not expire for at least five ...
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Gift cards - Canada.ca
How to use gift cards, what gift cards have expiry dates, what fees are on some gift cards, how to check your balance and where to buy gift cards.
[135]
Gift cards - Consumer Protection BC
Did you know that most gift cards are not allowed to expire or have fees? BC's gift card law speaks to expiry dates when fees can be charged, and what ...
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https://www.ontario.ca/page/buying-or-using-gift-cards
[137]
Ontario's new Consumer Protection Act | Gowling WLG
Dec 18, 2023 · Although already a rule in Ontario, the New CPA clarifies that gift cards cannot expire, regardless of whether the gift card is electronic ...
[138]
Business Practices and Consumer Protection Act - BC Laws
"Prepaid purchase card" means a card, written certificate or other voucher or device with a monetary value that is issued or sold to a person.
[139]
Gift cards | Alberta.ca
Gift cards purchased in Alberta are not subject to expiry dates and fees that lower their value over time. This includes cards purchased in Alberta on the ...
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Gift Card Regulation, Alta Reg 146/2008 - CanLII
Dec 13, 2022 · A supplier that sells a prepaid purchase card must provide the purchaser with a receipt as proof of purchase at the time of the sale.
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Prepaid Cards Redeemable for Specific Goods or Services
Mar 4, 2025 · For a prepaid card that can be redeemed for specific goods or services, the law prohibits merchants from indicating an expiry date or determining a period.
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Prepaid Cards | Éducaloi
Since June 30, 2010, prepaid cards cannot have expiry dates, except for cell phone cards and cards giving access to unlimited use of a service (e.g., a bus pass) ...
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Gift Card Regulations - Consumer Protection Act (Nova Scotia)
Dec 2, 2009 · A gift card that is issued or sold with an expiry date that is not permitted under Section 4 is redeemable as if it had no expiry date.
[144]
The not-so-hidden costs of gift and prepaid cash cards | CBC News
Feb 1, 2018 · In Canada, gift cards are federally and provincially legislated and often have no expiry dates, fees or administration costs. Prepaid cash cards ...
[145]
Regulations on gift cards around the world - Buybox
Nov 17, 2023 · In Canada and more specifically in Quebec, there is no expiry date on the gift card. An issuing brand that implements an expiry date for its ...Missing: province | Show results with:province
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Understanding Gift Voucher Expiry Laws in the UK - Sprintlaw UK
Jul 21, 2025 · Gift voucher expiry law in the UK allows expiry dates – but only if these are fair, reasonable, and clearly communicated at purchase. Hidden or ...Missing: EU | Show results with:EU
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https://uk.practicallaw.thomsonreuters.com/a-142-4469
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Complying With UK Law for B2C Gift Cards - Global Advisory Experts
On the other hand, if a gift voucher has already expired, you are not legally obliged to accept it. The responsibility for using the gift voucher within the ...
[149]
Gift card laws and regulations by country simplified - Cardivo
Expiration Dates: Gift cards cannot expire within five years from the date of issuance. Fees: Dormancy, inactivity, and service fees are allowed but must not be ...
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https://legal123.com.au/5-things-you-should-know-if-youre-selling-gift-cards/
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7 Key Aspects of Your Global Gift Card Program
Jun 1, 2023 · In some countries, there may be restrictions on the value of gift cards or the expiry date, which must be adhered to.Missing: variations | Show results with:variations