Get Out of the Loop

Nothing is worse than receiving a gift card to a store you never you never frequent. What most people do with unwanted or rather lack-luster gift cards is throw them in some dark drawer, never to be seen again. All of these unused gift cards add up to a rather large amount- there are currently around 44 billion dollars of unused giftcards sitting in consumer’s homes, waiting to be used.

While 44 billion dollars seems like a lot of money going to retailers for selling nothing, the law dictates that retailers cannot claim that 25$ gift card as revenue until it is spent at the store. Although there are set rules about when a company can claim gift card purchases as revenue, the SEC and federal government haven’t set a clear precedent concerning the growing world of unused gift cards. The SEC states that a retailer can claim gift card purchases as revenue only when it is reasonable to conclude that the gift card purchased will not be used. For example, Best Buy sets this time limit at two years, and in 2011 it pulled in 53 Million Dollars in unused gift cards as revenue.

Whether or not one agrees with the SEC and Best Buy’s policy, there are larger legal questions about where these funds should go. Some states argue that this unclaimed money should go to the state Unclaimed Funds Account for general use. Nonetheless, “closed loop” gift cards (gift cards issued for use at a single retailer) seem rather inefficient. A step above sending money as a gift, and still implies a shred of thought is the gifting of “open loop” gift cards. These are gift cards issued by credit card companies that can be used anywhere that accepts that credit card (like Visa or American Express gift cards.) Since 2014, the sale of open loop gift cards has outpaced that of closed loop, growing at 4.7% annually against closed loop’s 4.3% annual growth rate. 

Retailers should still rejoice at open loop gift cards, because the use of any gift card at a certain store still counts as revenue. Furthermore, due to item prices and sales taxes, items are rarely exactly 25 or 50 dollars, and if the price exceeds the value of the gift card by a little bit, consumer’s propensity to spend just a little over the value of the card will boost sales. 
Gift cards are great for gifting, as nearly three quarters of American adults plan to buy at least one gift card during a given holiday season. They allow the individual to give a gift that is more tasteful than cold hard cash, and allows the receiver to pick an item of their own liking. Although gift cards ease the pressure of picking the perfect gift, the general economic inefficiencies aren’t too small to ignore. Short of giving just plain money, open loop gift cards are the perfect means to give a gift that ensures the happiness of the recipient and the liquidity enjoyed by money.