All outstanding gift (and loyalty) card balance is counted as liability because they represent good/services (and in some cases money) that the business current

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.