It would make more sense to stop offering gift cards, which make zero financial sense for the consumer, but why stop offering a lucrative product that people buy because they're bad at logic, when you can just shut down accounts and greatly inconvenience people at no cost to you?

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viraptor 3 days ago | parent | next [-]

> which make zero financial sense for the consumer

Not in all situations. Because of various cross promotions between car insurance, supermarket and airlines, by using gift cards for groceries I get an effective ~9% discount every time. That really adds up over a year.

For Apple and others, you can use secondary gift card market to get some discounts too, if you wanna risk it.

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nullfield 2 days ago | parent [-]

What kinds of stacked cross-promotions like this exist, and even work out financially for everyone?

	▲	viraptor 2 days ago \| parent [-]
		I don't think they'd work out if everyone used them. It's essentially companies paying for your shopping data. But a) they overpay to incentivise you, b) I'm buying the same boring things on rotation so it's close to useless to them.

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varispeed 3 days ago | parent | prev | next [-]

One practical reason gift cards exist is tax treatment. In the UK, small non-cash gifts to employees can be tax-free under the “trivial benefits” rules (each under £50, not cash or cash-equivalent). For owner-managed companies, directors have a £300 annual cap across such benefits. Cash or cash-redeemable vouchers don’t qualify and are taxed like salary.

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pflenker 3 days ago | parent | prev | next [-]

Gift cards are huge in the B2B business as they are used a lot as gifts from companies to employees.

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Marsymars 3 days ago | parent | next [-]

Which I find obnoxious - they're taxable benefits, so I'd really rather just have the cash.

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stavros 3 days ago | parent | prev [-]

Seems like restricting their purchase to companies would be an easy way to prevent fraud.

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xmcqdpt2 3 days ago | parent | next [-]

Wouldn’t work for money laundering. As far as AML regs (and banks) are concerned a small business is indistinguishable from a personal retail account. This makes sense from a business point of view because a lot of small businesses are just one guy, and small business owners tend to mix their personal finance with their business finance. From an AML point of view, a lot, perhaps most money laundering is done with registered business entities. It’s easier to create a numbered corporation than a whole person.

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ChrisMarshallNY 3 days ago | parent | prev [-]

In the US, gift cards seem to be popular with consumers.

I regularly see people in line at the supermarket, buying gift cards. I notice, because it’s a discrete workflow, that stands out.

I doubt they are all feeding scammers.

I think that charities often solicit gift cards.

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stavros 3 days ago | parent [-]

I'm sure they're not all scammers, but what's the upside to the consumer? Why not just give the money directly? Seems to me like all the upside is on the company, and all the risk is on the user.

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generic92034 3 days ago | parent | next [-]

In some countries, where people receive conditioned social security benefits, just sending the money via bank account will have disadvantages (at worst the next sum from social security is lowered 1:1 by the money received and they try to keep it that way). So, if you do not meet the gift receiver in person and do not trust the postal service with cash, a gift card can be a solution.

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cedilla 3 days ago | parent | prev | next [-]

For some reason, many people think that gifting money is gauche, but gift cards are somehow okay.

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AnthonyMouse 3 days ago | parent | prev | next [-]

The theory is that if you give someone cash, they're just going to put it in the bank or buy gas with it, but if you give them gift card to e.g. a game store then they're going to buy a game, without you having to know which game they want.

It's the same premise as buying someone any gift instead of just giving them the money so they can buy whatever they want.

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stavros 3 days ago | parent [-]

I don't understand, what's the benefit to the recipient if I limit their choice for them?

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queenkjuul 3 days ago | parent | next [-]

Arguably, they'll be happier with the video game than with a tank of gas, which you've ensured they'll choose by not giving them the cash

Edit to add: kids often don't have bank accounts, i mostly received gift cards as a child, from relatives who wouldn't want to mail cash and couldn't give me cash in person. On a dark note, giving a kid a gift card to a toy store makes it harder for the parents to steal it for themselves.

The whole practice originates from "gift certificates" where you'd maybe go to your favorite spa and get a gift certificate to give someone, so that the spa treatment is the gift you're giving, but the recipient redeems it whenever they want. That just got abstracted to non-service gifts as well, with the same idea ("treat yourself to a new video game, whichever and whenever you feel like it" -- that's the gift, facilitated by the card)

	▲	nmcfarl 3 days ago \| parent [-]
		Also for kids at least, sometimes they really will be happier with less choice. Sometimes kids make bad decisions and limiting choice to good options is helpful. Additionally the inverse is true. Sometimes kids choices are restrained, and they really would like to do a thing they are not allowed to, and gift cards offered them away to do that. Case in point: my tween figured out that we don’t let him buy in game currency for any the games that we do let him play, however, when a relative gives him a gift card, we let him redeem it, making gift cards incredibly popular gifts.

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rvnx 3 days ago | parent | prev [-]

https://youtu.be/xj-7_YU-KIs

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badpun 3 days ago | parent | prev | next [-]

I joke that a $100 gift card is an "inferior $100 bill", because you can spend the bill anywhere, but the gift card only in one place. People give them as gifts because it shows marginally more effort than just giving cash.

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ChrisMarshallNY 3 days ago | parent | prev [-]

I agree, but, still, it is what it is.

	▲	stavros 3 days ago \| parent [-]
		No argument there, but I'm sure the loads of marketing on how "cash is out, gift cards are the new hip thing" didn't hurt.

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dev_l1x_be 3 days ago | parent | prev [-]

It’s a financial gimmick. The company realizes the income immediately while service is rendered later. This has positive impact on the finances.

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quesera 3 days ago | parent | next [-]

That's backwards. The company treats the GC as a liability. It cannot recognize the funds as revenue until they are spent. This is GAAP and law (but see exception below).

GCs are valuable to brands because they are marketing tools. Recipients are prompted to go to the merchant to spend money, and they usually spend about 40% more than the face value of the card.

Also, GCs are valuable to merchants for breakage. This is when a card (or partial balance) goes unused. Starbucks, as an imperfect example, recognizes about 10% of their total outstanding GC balance as revenue every year, due to breakage. This amounts to hundreds of millions of dollars.

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Workaccount2 3 days ago | parent | next [-]

But all those GC funds sit in investment accounts until they are used. It's genuinely profitable to have millions in unredeemed gift cards (and mobile app dollars) sitting around unused.

I've never had my $100 GC be worth $104 a year later, but for the issuer it is. They just keep the $4.

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dev_l1x_be 3 days ago | parent | prev [-]

Sorry I was not aware of GAAP. Anyways, I think the primary benefit is the interest-free financing. The company gets to hold the customer's cash and use it for operations (working capital) for the entire time the gift card is unspent. Maybe I was not right with the account terminology and should have mentioned the cash flow positive impact only.

Maybe it is more accurate this way?

	▲	quesera 2 days ago \| parent [-]
		It's a combination of things: marketing (difficult to quantify, but > 0), interest/appreciation on the float (4-10% annually), forecasted overspend (30-40%), and breakage (5-10%). The GC face value is a liability on the books though. It's treated as debt when doing cash calculations. They actually do want you to use the cards though. The overspend is more valuable to them than the other disposition possibilities. Recognized revenue is always the best outcome. The interest/appreciation is the same for the merchant, whether on float or on revenue, but revenue is better for reports. More broadly: All benefits of the cards definitely accrue to the merchant. There's absolutely nothing valuable to consumers about the deal!

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stavros 3 days ago | parent | prev [-]

Well yes, obviously, and the company doesn't have to pay anything for the cost of locking you out of all your work files forever and costing you however much, so it's all upside for them.

If they had to reimburse you for the cost of all your lost files, then we'd see the real impact on finances.