For many decades, people have been able to obtain gift certificates from individual retailers. The certificate is valid only at a particular store, and if the recipient did not use the entire certificate on his first purchase, he would most often lose credit for the balance or be issued a store credit to be used later. While such certificates always had certain popularity, they were most appropriate for individual recipients who lived near and would likely frequent the issuing store.

These vouchers had their limitations as below:

   •  Had to be physically carried and didn't allow for impulse purchasing

   •  Were prone to being misplaced or lost

   •  Had to be used at one go

   •  Were valid for a limited period of time (expiry date)

   •  Were easily stolen

The Gift Card - Advantages

Considering the above limitations, it was inevitable that gift certificates would be replaced by gift cards. These cards are machine readable and can be loaded with a particular amount of credit to be designated either at the time the card is created or at the time the card is purchased. By using sequential numbering, card issuers can keep track of the inventory of such cards, as well as the balance outstanding. It is not necessary to reissue these stored value cards if the gift amount is not used in full; the value declines by the amount used each time the card is presented for payment.

The benefits of a gift card over vouchers are:

• Easy to Carry
• Used like a debit card (reducing balance) and doesn’t have to be used at one go
• Can be ‘topped up’ and does not have an expiry date
• Can be personalized
• Can generate various MIS for analysis

Customer Benefits:

• Convenience & flexibility for both buyer and receiver - no paper form
• Re-loadable cards can be topped up for additional transactions
• Security - can be PIN based, and avoid having to carry cash
• Combo cards – one card support multiple programs – gift, loyalty, and more
• Easy to Use - don’t have to use at ‘one go’
• Hip and cool – The image is trendy and perceived to be a better gift than cash   

Merchant Benefits:

• Lift – consumers buy merchandise that total more than the value of the gift card
• Cash flow – prior to holidays – guaranteed future sales
• Extended peak season
• Alternate channels of distribution – eCommerce and m-Commerce. Cards are optional
• Marketing – merchants get creative with card design to target different demographics
• Marketing in 3rd party locations – Gift card malls. Increase in brand awareness and increase in sales
• Unused balances – new source of revenue
• Self-funded programs – in some cases unused balances can pay for part or the entire gift card program
• Low cost transactions – compared to credit cards or cash
• Financial control – reports allow reconciliation and audits