Merchants Reap Benefits from Online Gift Cards

Contact Us: 1-800-218-3683

Since the start of the pandemic, online gift card sales have increased significantly. A recent survey lead by InComm showed that the number of gift cards purchased online increased by 57% in the first six months of 2020 compared to the first six months of 2019.

“We have monitored a steady growth in online gift card purchases over the last few years, but the rapid increase of online purchases during the first half of this year has been remarkable,” said Brian Parlotto, executive vice president at InComm, in a statement. “The suddenness of the increase is largely the result of the pandemic’s effects on in-person shopping, but this trend is supported by data showing that consumers are increasingly purchasing gift cards for digital content such as gaming and streaming services.”

How Do Merchants Benefit from Accepting Gift Cards?

With the increase in consumers using gift cards to make online purchases, now is the time for merchants to get into the game. There are several major benefits for merchants who accept gift cards, especially self-branded ones.

  1. Customers Tend to Overspend the Balance:

Customers rarely spend the face amount of the card. Studies show that shoppers often spend as much as 30% more when they have a gift card to pay for their purchases. Both the merchant and customer are happy in this scenario. The merchant gets the value of the gift card plus the extra profit and the customer gets a higher-valued product that they spent little on themselves. And using a gift card online is very easy for a consumer.

  1. Unspent Balances & Fees:

Studies also show that many shoppers do not use the whole balance of their gift card. Maybe they put it away to use to make a purchase another day and forget about it. Maybe they don’t bother to use the last $2-$3 on the card and that money represents clear profit for the merchant.

  1. Refers Customers and Builds Loyalty:

Gift cards can generate brand awareness and increase your customer base. They can promote customer loyalty, increase sales, eliminate cash back for returns, and encourage customers to spend their credit. And best of all, gift card transactions have low or no credit card processing fees and allow a merchant to track sales and retrieve important marketing information.

How to Redeem Gift Cards at My Business?

There are two types of gift cards – open-loop and closed-loop.

Open-Loop Cards

An open-loop card, such as a Visa gift card, is a general-purpose card that usually bears the logo of the card brand or network and is redeemable nearly everywhere. They perform like debit cards in that the amount of the transaction is automatically deducted from the balance available. There is no need to add any program to your POS terminal since these cards are issued by the credit card associations and can be processed like any debit card, and they have the lowest processing fees. However, these gift cards do not come with a PIN. If your customer is swiping their card at your POS terminal, be sure the customer pushes CREDIT on the keypad and signs the sales receipt to complete the transaction.

Open-loop gift cards are sold with different cash values. When the card is swiped (or the information is input), your acquiring bank sends the transaction to the issuing brand association for authorization and payment. If there is enough balance to cover the purchase, the transaction is approved, and the amount is deducted from the card balance. If the balance is not sufficient to cover the purchase, the amount that is left goes toward the purchase, and your customer must use another method of payment to complete the transaction.

Closed-Loop Cards

Closed-loop cards are cards that only work at one store or with one corporation’s retailer such as Target, Walmart, or Amazon. As a merchant, you can self-brand these and take advantage of promoting brand awareness and building brand loyalty. As with card-branded gift cards, self-branded gift cards are processed through your credit card processing terminal. However, you will need to add a gift card program software to your POS terminal or eCommerce payment process to track gift card purchases. This program can be setup and monitored through your credit card processor or can be managed by a third-party company that specializes in designing gift card programs.

Processing these cards is simple. First, your customer purchases your self-branded gift card. This card can be paid for with cash or with a credit card. By swiping the card in your payment terminal, you activate the card and add the purchased amount to the card. Then, when the recipient of the gift card uses it to pay for a purchase at your business, the program deducts the amount from the card and prints out a receipt for you and one for your customer with the information about the sale and the balance left on the card.

Accepting gift cards is no longer a marketing strategy reserved for large businesses. When it comes to accepting gift cards for sales transactions, it is now a simple process with tremendous benefits to companies both large and small.

Is Your Business Ready to Benefit from Gift Cards?


Check out i3 Merchant Solutions’s newsroom.

Subscribe to Card Talk

Our monthly newsletter delivers the latest payments news straight to your inbox