The Little secret businesses don’t want you to know about Gift cards

Did anyone notice that gift cards have slowly become bigger and bigger in America? That stores and websites have started to push them as great gift ideas? Why would they do this? Maybe they are looking out for us because giving cash was just so 2000 or maybe because people like to collect a bunch of cards we can only spend at one store. I hope you are picking up the sarcasm because I am laying it on pretty thick.

Well, the little secret that not many folks don’t know is that businesses do it to make more money. You ask how, well let me tell you.

First some folks actually do like collecting the silly things, almost like baseball cards. I find this ludicrous but go figure. Thats why you see all different types of looking cards.

Second, when you get a gift card it locks you into buying at only one store, which is what they want. Yes you can get a Visa gift card but they just charge you up front a fee to use it. Again, you do realize cash or a check work too, right!

Another reason, is when you use the card they win either way. Think about it. If you get a $50 gift card how likely is it that you will spend exactly $50. You either will spend over, which yea they are happy or you will spend under and forget about the card, which again yea they are happy.  Think about all the people that just plain lose the cards or they leave that $2.34 on it.

Finally and I think the biggest, the businesses only have to pay for the credit card transaction once. You see every time you swipe your little Visa credit card, Visa charges a transaction fee and a % on the charge. So, a business could be paying .35 cents on the transaction and 1% on the charge. It is not a ton of money until you realize this happens for every credit card transactions millions to billions of times a day. This is where gift cards come in. They only pay the fee once when you buy they card. Now if you buy 6 things after that they pay no credit card fee. Ching! Ching!

I think the best example of this is Starbucks. Who doesn’t love a great mobile app, seamless experience purchasing and reloading your gift card. The pioneered this and for good reason. The fee they were paying was much higher than other business because each transaction was below $6 (still hurts me to think about someone paying $6 for a coffee but off topic). So, each time they had to pay the transaction fee and % on the charge. Gift cards help them move the transactions to high values like $25, $50 or $100 when a customer reloads the cards.


Froogalooper thoughts:

  1. Gift cards can serve a purpose but just do not have too many
  2. Gift cards are great ways to meet spending requirements on certain bonus credit cards
  3. If you have to give a gift card, make it to something general like Amazon or small and specific like Starbucks
  4. I only buy gift cards from 3rd party sites and Starbucks at the moment


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