9 ms·

The economics of unused gift cards

43 points by stephsmithio 7y ago

SamBam 7y ago
I'm interested in the economics and law of when this is counted as income. The article says that in the general case, the company only counts the card as income once it is redeemed. Until then it is counted as a liability. This makes a little sense, since they still owe you goods and services, but (1) aren't the goods/services they are offering worth less to them than the value on the card, and (2) aren't they generating interest off that? Next, it says that under a 2009 law, the companies can start counting it as income sooner (6-24 months), and the accompanying article suggests that this is good for the companies' bottom line. But wouldn't it really be the opposite? Before they counted it as income, surely they had all the benefits of the money and it's not even being taxed as income yet? Wouldn't they want to hold off on counting it as income as long as possible?
- teej 7y ago
  Cash that’s usable to invest in the business is different, and worth more, than cash that’s locked up due to liabilities. Interest rates are low, so earning < 2% on the float isn’t the best way to deploy capital.
- 638d127673 7y ago
  From the point of view of financial reporting (i.e. accounting income that you see on the financial statements), holding the liability indefinitely is not a good thing as it negatively affects the leverage ratios and implies a future obligation. The new accounting requirement that allows companies to estimate the so called 'breakage' (i.e. anticipated unused balanced) and recognize that as income over time rather than keep it as an indefinitely liability. Legally, there's also the concept of escheatment, which depends on the country/state that tells a company what to do with the unused balance. In some cases, the government may claim this balance. To your question about paying income tax on income, most tax codes would require the companies to pay tax on the amounts when they receive the cash rather than when they satisfy the obligations. So it's likely that they've already paid tax on this amount.
- AmericanChopper 7y ago
  All outstanding gift (and loyalty) card balance is counted as liability because they represent good/services (and in some cases money) that the business currently owes to customers. I worked in the gift/loyalty industry, and the article gets most things right, but the specifics depend a lot on the jurisdiction and the nature of the program. In markets that don’t regulate otherwise, a typical program will count unused balance as breakage 12 months after issue. The typical balance on such a card would amount to unspent change from a purchase. In regulated markets, they’ll just follow whatever the regulation is, which sometimes requires charging an “account maintenance” fee, instead of just removing the balance. What happens to the money before it is either redeemed or taken as breakage depends again on the specifics of the program and the jurisdiction. Sometimes it will be required to be held in a trust, or in some other form of escrow. Often this will preclude the possibility of earning interest. Sometimes the gift card provider and the merchant are different parties. An example of this would be a mall that sells a gift card that you can use to redeem at any store in the mall, or a visa gift card. In this case, the program operator does not simply exchange the balance for stock, they have to settle cash with the merchant. Loyalty liability is different again, because that’s liability that you never received a direct payment for in the first place. The one huge mistake that this article makes is that it claims the breakage income is 100% profit. This ignores the costs of operating the program, which is usually millions of dollars. Small retailers would receive trivial breakage income, and would not necessarily even cover program costs with it. Medium size retailers may or may not generate a profit on breakage, large retailers likely do, but their program expenses are also enormous. The real value to the business is customer acquisition.
ProAm 7y ago
I literally just toss them in the trash because I know I'll never use them.
- overcast 7y ago
  I'll literally pay you to ship them to me.
- fenwick67 7y ago
  Lots of pawn shops will pay cash for them.
- nickthegreek 7y ago
  There are machines in some grocery stores that will take the gift card, take a percentage and give the rest to you in cash.
  - newguy1234 7y ago
    At 60% face value. Imo gift card is worst gift to get unless it is for target walmart or amazon. Just give cash instead.
- nkrisc 7y ago
  Honestly not that shocking because this is the fate of many gifts. It's only a smidgen more shocking because it would be easier to give away a gift card than a waffle maker.
- crazygringo 7y ago
  Wow. You don't even bother to just give them to someone? A family member, a friend, a coworker? I'm not shocked by a lot of things, but I guess I am kind of shocked that someone would have so much money that it's not even worth their time to keep it in their wallet until the next chance they have to give it to someone else who would appreciate it.
  - ProAm 7y ago
    I used to but its more that I never remember them. A long time ago I would save them and tell myself to remember to use them and I never did. Then I would save them in my car for the next time I see a family member to give it to them, and I would never remember then. Just a hassle, in all aspects so its easier to toss them. Nothing gained nothing lost.
gwbas1c 7y ago
At least in my family, we only do gift cards for restaurants. It still has the symbolism of a well-thought gift. Otherwise, I just give my niece and nephews cash. (Personally, I hate gift cards. They're usually at a place I'd never shop, so I end up buying something of marginal value.)
JohnFen 7y ago
I hate getting gift cards. If someone feels the need to give me a gift but doesn't want to put thought into it, cash would be a much better choice. When I do get a gift card, what I end up doing is giving it to someone else who would appreciate it more. Or, if I can't find such a person (it tends to be 50-50), then I sell it through a local classified ad site for 50% of the value it contains.
- ljm 7y ago
  They’re a lazy gift because somehow offering cash direct has become a problem. So just spend the same money but make sure a retailer has already profited from it. Direct cash is infinitely better than deciding where someone much spend money at. No gift at all and the promise of a good moment together is even better than that. Enjoy your time, not your possessions. Good old consumerism in action.
  - amflare 7y ago
    Not necessarily. If I give my mother $50 for a spa place, I'm gifting her a relaxing day that she might not be able to budget for or otherwise justify. If I gift her $50 cash, it's probably going to get used as part of next week's grocery budget if not lost in her purse entirely.
    - JohnFen 7y ago
      > If I give my mother $50 for a spa place, I'm gifting her a relaxing day that she might not be able to budget for or otherwise justify. If you know that your mother enjoys that particular spa, then I agree, it's a good, thoughtful gift -- basically that's the right way to use gift cards/certificates. That's not how they're used for the most part. For example, 90% of the time when I'm given a gift card, it's for Amazon -- the thought behind that is precisely the same as it would be for cash, except that I am now constrained to using it on Amazon rather than somewhere else that may be a lot better for me.
      - ghaff 7y ago
antisthenes 7y ago
I only ever get Amazon gift cards. Don't know what I would do with something like a Red Lobster gift card. It's easy to redeem them immediately and have that balance in my account forever.
- ghaff 7y ago
  If a company gives me a gift card (some thing at a tradeshow, filling out survey, etc.), Amazon's basically what I want. I enter it into my account and it's basically right there effectively like cash. I don't give gift cards but I guess they're OK if the person knows I shop somewhere semi-regularly for fun type stuff. e.g. REI for me. Maybe it will lead me to buy something that catches my eye but I don't need so I'd otherwise pass on. Red Lobster I would be thinking "I didn't know you hated me so much." :-)
- nessus42 7y ago
  I always get Amazon gift cards for Xmas, which I use to buy the rest of my family Amazon gift cards for Xmas.
thewebcount 7y ago
I have had the following things happen with gift cards that I wanted to use: - Use 90% of the money on it, then there's not enough left to buy anything. I have a "gift card" that was a refund from a cable company, and it has something like $1.96 on it. - I once received a "points" card to a restaurant that I used to frequent. Unfortunately, to "activate" it, I needed the credit card number that was used to purchase it. My father-in-law who purchased it for me, didn't know which card it had been on. I was never able to use the points, and eventually the restaurant closed. - I received a gift card for participation in a clinical study. Despite activating it, I can't find any place online or in person that will accept it. It's a VISA gift card, but every time I try to use it for a purchase, it's declined. WTF?
Sohcahtoa82 7y ago
I like gift cards as long as it's for a store that I would normally shop at anyways. But a few years ago, I was given a gift card to Macy's. I don't shop at Macy's and had a hard time finding something to get. Every single thing I looked at, I could get at half the price basically anywhere else. I ended up buying some kitchen stuff, but felt like the giver's money was wasted. The worst gift card in my experience is a Visa/MC/AmEx gift card. It is often a pain to deal with them if the balance on the card isn't enough to cover a purchase unless the business you're spending it at is capable to splitting a purchase over multiple credit cards and the cashier knows how to do that.
- MisterBastahrd 7y ago
  Best way to handle that is at the grocery store. Due to the prevalence of EBT cards, all cashiers are going to know how to process multiple cards.
  - Sohcahtoa82 7y ago
    Usually, but not necessarily. Back when I worked at a grocery store, if a customer paid with EBT, we just pressed the EBT button and the register would charge only the food total to the card and then ask for more money. If they paid with a credit card, we just pressed the credit card button and then swiped the card and the balance of the transaction would get charged. What a lot of my fellow cashiers didn't know, because they were never explicitly told during training, is that they could specify the amount to charge to the credit card by typing the amount and then pressing the credit card button. If a customer had a $20 Visa Gift card, but had a $30 purchase, and they tried to pay with the gift card, but the cashier only pressed the CC button without specifying to only charge $20, then the card would simply get declined with no message about how much was remaining on the card. And due to lack of training, even if the customer knew how much was on the card, the cashier might not know how to only charge the $20.
- dripton 7y ago
  I use the Visa gift cards for charitable contributions. The nice thing about charities, as opposed to random purchases, is you get to pick the amount.
maerF0x0 7y ago
https://www.giftbit.com/business-solutions/send-gift-cards-in-bulk/ https://www.giftbit.com/business-solutions/send-gift-cards-i... Is trying to help close the gap so that you can get something back if it's unredeemed
buzzert 7y ago
Does anybody know of any non-scammy ways to turn visa gift cards into cash/crypto? I’d love to do something irresponsible with mine, like gamble at a bitcoin casino or something.
- mustardo 7y ago
  Create two pay pall accounts, and send yourself an invoice from one to another, settle the funds into your bank account, assuming this would work via Stripe or other payment gateways. You'll obviously loose the CC processing fee
derefr 7y ago
For a while, I would receive gift cards as gifts from my mother. She isn't the type of person to buy gift cards for people. But, for a while, she worked at a large supermarket chain, which meant that she could buy gift-cards from the store she works in below cost, i.e. that she could pay $90 to activate a $100 gift card. This would probably be the one-and-only time that gift cards are really "better than cash."
heinrichf 7y ago
An economist one said "Socks and gift cards are the junk bonds of gifts" https://www.npr.org/2019/12/16/788587668/the-efficient-christmas-why-economists-hate-gifts?t=1578380529104 https://www.npr.org/2019/12/16/788587668/the-efficient-chris...

43 points by stephsmithio 7y ago

I'm interested in the economics and law of when this is counted as income. The article says that in the general case, the company only counts the card as income once it is redeemed. Until then it is counted as a liability. This makes a little sense, since they still owe you goods and services, but (1) aren't the goods/services they are offering worth less to them than the value on the card, and (2) aren't they generating interest off that? Next, it says that under a 2009 law, the companies can start counting it as income sooner (6-24 months), and the accompanying article suggests that this is good for the companies' bottom line. But wouldn't it really be the opposite? Before they counted it as income, surely they had all the benefits of the money and it's not even being taxed as income yet? Wouldn't they want to hold off on counting it as income as long as possible?

teej 7y ago
Cash that’s usable to invest in the business is different, and worth more, than cash that’s locked up due to liabilities. Interest rates are low, so earning < 2% on the float isn’t the best way to deploy capital.
638d127673 7y ago
From the point of view of financial reporting (i.e. accounting income that you see on the financial statements), holding the liability indefinitely is not a good thing as it negatively affects the leverage ratios and implies a future obligation. The new accounting requirement that allows companies to estimate the so called 'breakage' (i.e. anticipated unused balanced) and recognize that as income over time rather than keep it as an indefinitely liability. Legally, there's also the concept of escheatment, which depends on the country/state that tells a company what to do with the unused balance. In some cases, the government may claim this balance. To your question about paying income tax on income, most tax codes would require the companies to pay tax on the amounts when they receive the cash rather than when they satisfy the obligations. So it's likely that they've already paid tax on this amount.
AmericanChopper 7y ago
All outstanding gift (and loyalty) card balance is counted as liability because they represent good/services (and in some cases money) that the business currently owes to customers. I worked in the gift/loyalty industry, and the article gets most things right, but the specifics depend a lot on the jurisdiction and the nature of the program. In markets that don’t regulate otherwise, a typical program will count unused balance as breakage 12 months after issue. The typical balance on such a card would amount to unspent change from a purchase. In regulated markets, they’ll just follow whatever the regulation is, which sometimes requires charging an “account maintenance” fee, instead of just removing the balance. What happens to the money before it is either redeemed or taken as breakage depends again on the specifics of the program and the jurisdiction. Sometimes it will be required to be held in a trust, or in some other form of escrow. Often this will preclude the possibility of earning interest. Sometimes the gift card provider and the merchant are different parties. An example of this would be a mall that sells a gift card that you can use to redeem at any store in the mall, or a visa gift card. In this case, the program operator does not simply exchange the balance for stock, they have to settle cash with the merchant. Loyalty liability is different again, because that’s liability that you never received a direct payment for in the first place. The one huge mistake that this article makes is that it claims the breakage income is 100% profit. This ignores the costs of operating the program, which is usually millions of dollars. Small retailers would receive trivial breakage income, and would not necessarily even cover program costs with it. Medium size retailers may or may not generate a profit on breakage, large retailers likely do, but their program expenses are also enormous. The real value to the business is customer acquisition.

ProAm 7y ago

I literally just toss them in the trash because I know I'll never use them.

overcast 7y ago
I'll literally pay you to ship them to me.
fenwick67 7y ago
Lots of pawn shops will pay cash for them.
nickthegreek 7y ago
There are machines in some grocery stores that will take the gift card, take a percentage and give the rest to you in cash.
- newguy1234 7y ago
  At 60% face value. Imo gift card is worst gift to get unless it is for target walmart or amazon. Just give cash instead.
nkrisc 7y ago
Honestly not that shocking because this is the fate of many gifts. It's only a smidgen more shocking because it would be easier to give away a gift card than a waffle maker.
crazygringo 7y ago
Wow. You don't even bother to just give them to someone? A family member, a friend, a coworker? I'm not shocked by a lot of things, but I guess I am kind of shocked that someone would have so much money that it's not even worth their time to keep it in their wallet until the next chance they have to give it to someone else who would appreciate it.
- ProAm 7y ago
  I used to but its more that I never remember them. A long time ago I would save them and tell myself to remember to use them and I never did. Then I would save them in my car for the next time I see a family member to give it to them, and I would never remember then. Just a hassle, in all aspects so its easier to toss them. Nothing gained nothing lost.

gwbas1c 7y ago

At least in my family, we only do gift cards for restaurants. It still has the symbolism of a well-thought gift. Otherwise, I just give my niece and nephews cash. (Personally, I hate gift cards. They're usually at a place I'd never shop, so I end up buying something of marginal value.)

JohnFen 7y ago

I hate getting gift cards. If someone feels the need to give me a gift but doesn't want to put thought into it, cash would be a much better choice. When I do get a gift card, what I end up doing is giving it to someone else who would appreciate it more. Or, if I can't find such a person (it tends to be 50-50), then I sell it through a local classified ad site for 50% of the value it contains.

ljm 7y ago
They’re a lazy gift because somehow offering cash direct has become a problem. So just spend the same money but make sure a retailer has already profited from it. Direct cash is infinitely better than deciding where someone much spend money at. No gift at all and the promise of a good moment together is even better than that. Enjoy your time, not your possessions. Good old consumerism in action.
- amflare 7y ago
  Not necessarily. If I give my mother $50 for a spa place, I'm gifting her a relaxing day that she might not be able to budget for or otherwise justify. If I gift her $50 cash, it's probably going to get used as part of next week's grocery budget if not lost in her purse entirely.
  - JohnFen 7y ago
    > If I give my mother $50 for a spa place, I'm gifting her a relaxing day that she might not be able to budget for or otherwise justify. If you know that your mother enjoys that particular spa, then I agree, it's a good, thoughtful gift -- basically that's the right way to use gift cards/certificates. That's not how they're used for the most part. For example, 90% of the time when I'm given a gift card, it's for Amazon -- the thought behind that is precisely the same as it would be for cash, except that I am now constrained to using it on Amazon rather than somewhere else that may be a lot better for me.
    - ghaff 7y ago

antisthenes 7y ago

I only ever get Amazon gift cards. Don't know what I would do with something like a Red Lobster gift card. It's easy to redeem them immediately and have that balance in my account forever.

ghaff 7y ago
If a company gives me a gift card (some thing at a tradeshow, filling out survey, etc.), Amazon's basically what I want. I enter it into my account and it's basically right there effectively like cash. I don't give gift cards but I guess they're OK if the person knows I shop somewhere semi-regularly for fun type stuff. e.g. REI for me. Maybe it will lead me to buy something that catches my eye but I don't need so I'd otherwise pass on. Red Lobster I would be thinking "I didn't know you hated me so much." :-)
nessus42 7y ago
I always get Amazon gift cards for Xmas, which I use to buy the rest of my family Amazon gift cards for Xmas.

thewebcount 7y ago

I have had the following things happen with gift cards that I wanted to use: - Use 90% of the money on it, then there's not enough left to buy anything. I have a "gift card" that was a refund from a cable company, and it has something like $1.96 on it. - I once received a "points" card to a restaurant that I used to frequent. Unfortunately, to "activate" it, I needed the credit card number that was used to purchase it. My father-in-law who purchased it for me, didn't know which card it had been on. I was never able to use the points, and eventually the restaurant closed. - I received a gift card for participation in a clinical study. Despite activating it, I can't find any place online or in person that will accept it. It's a VISA gift card, but every time I try to use it for a purchase, it's declined. WTF?

Sohcahtoa82 7y ago

I like gift cards as long as it's for a store that I would normally shop at anyways. But a few years ago, I was given a gift card to Macy's. I don't shop at Macy's and had a hard time finding something to get. Every single thing I looked at, I could get at half the price basically anywhere else. I ended up buying some kitchen stuff, but felt like the giver's money was wasted. The worst gift card in my experience is a Visa/MC/AmEx gift card. It is often a pain to deal with them if the balance on the card isn't enough to cover a purchase unless the business you're spending it at is capable to splitting a purchase over multiple credit cards and the cashier knows how to do that.

MisterBastahrd 7y ago
Best way to handle that is at the grocery store. Due to the prevalence of EBT cards, all cashiers are going to know how to process multiple cards.
- Sohcahtoa82 7y ago
  Usually, but not necessarily. Back when I worked at a grocery store, if a customer paid with EBT, we just pressed the EBT button and the register would charge only the food total to the card and then ask for more money. If they paid with a credit card, we just pressed the credit card button and then swiped the card and the balance of the transaction would get charged. What a lot of my fellow cashiers didn't know, because they were never explicitly told during training, is that they could specify the amount to charge to the credit card by typing the amount and then pressing the credit card button. If a customer had a $20 Visa Gift card, but had a $30 purchase, and they tried to pay with the gift card, but the cashier only pressed the CC button without specifying to only charge $20, then the card would simply get declined with no message about how much was remaining on the card. And due to lack of training, even if the customer knew how much was on the card, the cashier might not know how to only charge the $20.
dripton 7y ago
I use the Visa gift cards for charitable contributions. The nice thing about charities, as opposed to random purchases, is you get to pick the amount.

maerF0x0 7y ago

https://www.giftbit.com/business-solutions/send-gift-cards-in-bulk/ https://www.giftbit.com/business-solutions/send-gift-cards-i... Is trying to help close the gap so that you can get something back if it's unredeemed

buzzert 7y ago

Does anybody know of any non-scammy ways to turn visa gift cards into cash/crypto? I’d love to do something irresponsible with mine, like gamble at a bitcoin casino or something.

mustardo 7y ago
Create two pay pall accounts, and send yourself an invoice from one to another, settle the funds into your bank account, assuming this would work via Stripe or other payment gateways. You'll obviously loose the CC processing fee

derefr 7y ago

For a while, I would receive gift cards as gifts from my mother. She isn't the type of person to buy gift cards for people. But, for a while, she worked at a large supermarket chain, which meant that she could buy gift-cards from the store she works in below cost, i.e. that she could pay $90 to activate a $100 gift card. This would probably be the one-and-only time that gift cards are really "better than cash."

heinrichf 7y ago

An economist one said "Socks and gift cards are the junk bonds of gifts" https://www.npr.org/2019/12/16/788587668/the-efficient-christmas-why-economists-hate-gifts?t=1578380529104 https://www.npr.org/2019/12/16/788587668/the-efficient-chris...