This is part two of three on why gift cards get a bad rap. You can find part one here.
I’ve worked in the gift card industry for 11 years and it’s because I love gift cards. I think every retail shop should have one and I think everyone should give them as gifts. They convey so much in such a convenient manner. But why do gift cards sometimes get a bad rap? As I mentioned in an earlier post there are three primary reasons:
- A perception gift cards aren’t personal enough
- Some gift cards come with fees
- There is a certain percentage of the value of the cards that never gets used – what the industry calls breakage.
There are two primary categories of gift cards – we’ll call them “open-loop” and “closed-loop.” When you see the big numbers of gift cards sold in the U.S. (like $100 billion!) – it is taking into account both categories. Open-loop gift cards are issued by banks and typically carry the Visa, MC, Discover, and AmEx logo on them. Closed-loop gift cards are the store specific cards, issued by the retailer themselves (these would include gift cards from The Home Depot, REI, etc).
Open-loop gift cards have always had fees – they typically charge a purchase fee (which is sometimes euphemistically named as a “convenience fee”). Because the recipient is effectively getting cash the cost to produce, distribute, and the incentive to sell the card is all captured in that purchase fee. There is some benefit to buying an open-loop gift card but the fees have always made me shudder. I’d rather give someone a crisp, newly-minted $20 bill! These cards also carry “dormancy” fees – which means you could get a monthly deduction if you don’t use the cards. In 2009 the federal government passed the CARD act which standardized disclosures – fees had to be disclosed on the packaging, cards couldn’t expire in less than 5 years, and dormancy fees couldn’t begin until 12 months of non-use.
Closed-loop, or retail-specific cards are optimal if you know exactly what to give your recipient. They have generally, as a category, always been free of fees. There is a real benefit for the stores to encourage your purchase of their specific gift cards and there is real value in receiving a gift card to a store you like.
We built the Tango Card as a fee-free product from day one. Our simple philosophy is that a gift card received as a gift or a reward should be a delight. We threw out the notion of having to decide between “choice” and “fees”. When you give a Tango Card the recipient can choose one or multiple closed-loop brand partners’ cards and even make a donation to a non-profit. With the Tango Card, there is now no need to decide between giving “choice” and avoiding “fees” – you can do both with one product.