Gift Cards – A Consumer Guide

A gift card is a plastic, electronic version of the old paper gift certificate (a paper voucher that can be spent at a specific store). The card contains a computer microchip that stores a set value according to how much the giver spends at the time he or she purchases the card. In industry terms, this kind of card is described as a “prepaid” or “stored-value” payment device. A balance of funds is stored on the card until it is spent by the person who received it as a gift.

Some gift cards are sold by specific retailers (such as Gap, Barnes & Noble, and Target) and can only be redeemed at those retail establishments; these are called “closed-system” cards. Others are sold by credit card companies (such as Visa, MasterCard, and American Express) and can be spent anywhere those cards are accepted; these gift cards are called “open-system” cards.

Since their introduction in the mid-1990s, gift cards have been an increasingly popular solution to the age-old dilemma of what to buy for family and friends on birthdays and holidays, when you have no clue what they would like. As an alternative to giving an envelope of cash (which many people find to be crass or impersonal) or taking a gamble on a sweater that will probably be returned or pushed to the back of the closet, a gift card has become a fashionable way to show you care by allowing someone to pick out something that he or she really likes.

Gift cards came into use in the American marketplace in the mid-1990s, but the origin of “prepaid” cards can be traced to the early 1970s, when transit cards were first issued as a convenient way to prepay for a block of subway or bus rides. At about the same time, colleges and universities began offering prepaid cards that students could use to make purchases on campus. Closed-system cards found another application in the late 1980s with the advent of prepaid phone cards.

The video-store chain Blockbuster is credited with introducing, in 1995, the first closed-system prepaid gift card. The idea caught on immediately, and 10 years later just about every major retailer in the United States offered a closed-system gift card for purchases at their locations.

The first open-system cards were made available in the early 1990s, when the federal government began replacing paper-based food stamps (vouchers issued as public assistance to low-income families) with Electronic Benefit Transfer (EBT) cards, which could be used to buy food at grocery stores. In the mid-1990s Visa and a London-based company called Mondex International introduced prepaid open-system cards that could be used anywhere as a form of electronic cash. Although these and other open-system cards were slower to catch on, in 2005 industry analysts stated that prepaid or stored-value cards had great potential for other uses.

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Source by Kris Lee

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