Gift Card

What a gift card is

A gift card is a prepaid payment method with a stored balance. The buyer pays first, and the recipient uses the value later. The balance is tracked by a gift-card system using a card number or digital code, and sometimes a PIN.

A closed-loop card works at one business or a group of related businesses. An open-loop card runs on a card network and is accepted wherever that network’s cards are accepted. Physical and digital cards can both be used in person or online, depending on the program.

Gift-card revenue arrives upfront, but the unredeemed balance remains an obligation your business must track.

How a gift card works

When a customer buys a gift card, your program records the value and activates the card. At redemption, your point-of-sale system or online checkout sends the card details to the gift-card provider, which checks the balance and approves all or part of the purchase.

If the balance does not cover the full purchase, the checkout needs to accept another payment method for the remainder. For example, an illustrative $100 purchase paid with a card that has $70 left requires another $30 payment. Whether partial approval works depends on your provider and how your checkout is configured.

Using a gift card with a remaining balance

Illustrative example. Partial approval depends on the gift-card provider and checkout setup.

What it means for your costs and cash flow

Gift-card sales bring in payment before you provide the goods or services. In your accounting, the sale creates a liability until the customer redeems the balance or the amount is otherwise handled under applicable rules.

Closed-loop redemptions run through your gift-card system rather than a card network, so they do not create a card-network transaction at redemption. Open-loop cards incur network fees on each redemption. The research does not establish a standard fee amount, so compare your provider’s documented fees rather than assuming every gift card is free to accept.

The payment used to buy a gift card is a separate transaction from its later redemption. If a customer buys your gift card with a credit or debit card, that purchase uses the relevant card payment process. Keep gift-card sales and redemptions distinct in your reconciliation so the original sale is not mistaken for a second card-funded sale.

Where gift-card programs go wrong

A gift card creates a balance that can be stolen or misused. Predictable card numbers can be tested against public balance-check tools, and stolen value is difficult to recover once spent. Use hard-to-guess card numbers, limit repeated balance-check attempts, and protect customer accounts and staff access.

State unclaimed-property rules can require you to report and remit unused balances. The exact obligations depend on the state and the card program, so track outstanding balances and document how your business handles inactive cards. Lost-card replacement, refunds, voids, and partial redemption also depend on the provider’s supported operations and your program terms.

What you can actually change

1. 01
   Separate sale and redemption. Reconcile gift-card sales, activations, redemptions, and outstanding balances separately. This keeps upfront cash from being counted as completed sales before the customer spends it.
2. 02
   Review provider fees. Identify fees for issuing, loading, redeeming, checking balances, and handling refunds or voids. Compare each fee with the operation it covers.
3. 03
   Test partial payments. Run a test where the purchase exceeds the card balance. Confirm your checkout applies the available value and clearly collects the remainder through another payment method.
4. 04
   Protect card balances. Use unpredictable card numbers and limit repeated balance inquiries. Train staff to follow a documented process for lost cards and disputed balances.

Frequently asked questions