Comment by stavros
2 months ago
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?
> 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.
What kinds of stacked cross-promotions like this exist, and even work out financially for everyone?
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.
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.
Gift cards are huge in the B2B business as they are used a lot as gifts from companies to employees.
Which I find obnoxious - they're taxable benefits, so I'd really rather just have the cash.
Are people really declaring the $30 amazon card they got for Christmas?
Seems like restricting their purchase to companies would be an easy way to prevent fraud.
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.
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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It’s a financial gimmick. The company realizes the income immediately while service is rendered later. This has positive impact on the finances.
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.
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.
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?
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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.