Gift cards can be good
You can barely walk through a grocery store or many other outlets without seeing racks and racks of gift cards. Are they safe and are they as convenient as promoters would have you think they are?
The Office of the Comptroller of the Currency (OCC) offers guidelines for issuance of Gift Cards. Unfortunately the OCC guidelines are nothing more that that -- guidelines. They are not law. So gift card purchasing is strictly a "Buyer Beware" environment.
Gift Cards from some very conscientious sellers can be an awesome gift. They offer convenience and practicality. Gasoline credit cards, store discount cards, retail specific gift cards, prepaid telephone and credit cards and so many more can all lead to a gift giving buyers dream of convenient shopping and idea generation. They can be easily mailed and can be a very well received by the recipient. But generally gift card promotion and popularity has less to do with customer convenience and far more to do with incredible profitability.
The retailer simply cannot loose
Consider the fact that a gift card is for a specific amount. If the recipient uses the card for less than the full card amount of the gift, the balance usually remains on the card to be used for the same service or at the same location. But often times a balance remaining of less than $5 usually remains on the card and this is pure profit for the issuer. As an example a $15 gift card for a CD that costs only $13 will usually have the remaining $2 remain on the card until expiration. The thought is, what are you going to buy for $2 and the issuer knows this.
On the other hand, if the recipient uses the card for more, the additional amount of purchase is from the recipient's pocket. For example, let's say the same consumer from above elects to use the extra $2 for a second CD. Now the retailer has just made more money from an add-on purchase. The retailer simply cannot loose.
Additionally the consumer is obviously required to be at the establishment. The single greatest advertising cost is the cost of bringing in new customers. But gift cards are a free method of accomplishing this purpose. PR newswire on January 9, 2008 reported: "Fifty-three percent of gift card redeemers often or always spend more than the card value, and most likely over two store visits rather than one." Not bad for simply offering a piece of plastic.
Now let's consider less-than-conscientious sellers:
-- OCC suggests the expiration date of the gift card should be on the front of the card. Is it? (Considering that a gift of money would not expire at any point, why does a gift card expire?)
-- Are any fees monthly or otherwise listed? Some cards have a $2.50 monthly fee tacked on after a certain period of time. It does not take long to significantly reduce the amount of purchase at that rate.
-- Issuers should not advertise "no expiration" if fees eat at the balance if not used immediately.
-- Cards should have some means of contacting a customer service. Does it? Obviously theft of cards has to be a major concern simply because of the same convenience as stated for the consumer.
Gift cards lead the market of the 81 billion dollar pre paid industry and are expected to top 52 billion dollars in the next 5 years. That being the case, it is unlikely that gift card will disappear very soon. Hopefully what will disappear however are the scams and abusive practices some promoters utilize. Gift cards are sufficiently lucrative never to need such practices.
Mike has been an Internet Guide/Writer in the field of Credit/Debt Management for over 10 years. His site was awarded Best Of Net by Forbes Publication from 2000 to 2005 with site visitation doubling to over 500,000 average views per month in the last year. Earning an M.S. in Counseling from Creighton University, NE, and with his Practicum in financial counseling to military families, Mike has offered debt elimination seminars to businesses and community colleges for the last 9 years, has had radio interviews, as well as been referenced in numerous publications, both in the newspaper and throughout the Internet financial community. Readers will probably be interested to know Mike also offers a free debt elimination mini-course via email. You can enroll at Debt Free In 7.5 Years. Visit his site at LearnCreditManagement.com for more vital information on debt management.© 2009 Mike Killian
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