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Gift Cards Are Like Socks

January 18, 2012
Prepaid
Ben Jackson
Mercator Advisory Group
Gift cards are one of the most popular holiday gifts both in terms of appearing on wish lists and shopping lists. The convenience and choice provided by gift cards give them a competitive edge over socks. Unfortunately, gift cards share something else in common with socks as a gift in that many times recipients are disappointed when they open them.

Since gift cards aren’t terribly effective for keeping one’s feet warm, disappointed recipients have sought ways to sell and trade gift cards rather than just putting them in their shoes. Gift cards have been traded and sold on sites like Craigslist and Ebay, but the risks of theft and fraud have kept these markets relatively small. Now, however, companies have developed secondary markets for gift cards that do not involve the issuer directly, except when the market makers confirm the balance.

The Internet has led the way in offering options for gift card holders. In a blog reposted on the US News and World Report Money site, a blogger lists five sites where gift card recipients can sell unwanted gift cards. Sites like plasticjungle.com offer to buy the cards from the cardholders at a discount, and they then re-sell the cards at face value to other people interested in the cards. (You can see all the sites along with the terms that they offer at http://money.usnews.com/money/blogs/my-money/2012/01/06/5-places-to-sell-unwanted-gift-cards.)

Openbucks Corp. has created a system that allows closed-loop gift card holds to spend the balance on their cards at merchants other than the issuer. The company says that it can provide increased value to the cardholders by giving them more options and to the issuers by driving incremental sales. So far, Subway, CVS, Sports Authority, and several other companies have signed on to let Openbucks facilitate redemption at other merchants. Openbucks primarily facilitates redemption at online gaming sites, but is in discussions with other types of online shopping sites to allow gift cards from other merchants to be redeemed for hard goods as well.

Online portals are not the only channel for reselling gift cards. Coinstar Inc., which got its start by counting coins languishing in change charges and making them more fungible, now has a plan to offer kiosks that will accept the gift cards languishing in people’s wallets. Alula kiosks will give people a voucher they can redeem for cash after they insert an unwanted gift card.

While retailers may regard this trading in their gift cards with some suspicion, this activity will likely be a boon to them. What retailers want is for cards to be in the hands of eager customers who will likely spend more than the face value of the card at the time of redemption. This secondary market means that the cards are redistributed at virtually no cost to the issuer. While there are some concerns around fraud and possibly brand management, retailers should take a look at these sites to see how their cards are trading and think about opportunities to entice gift cardholders into their stores.
 

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