Lending Club Blog

Electronic Gift Certificates

In the past, I’ve written about the negative aspects of using gift cards. Electronic gift certificates have some advantages over physical gift cards, but some merchants limit their effectiveness and inspire you to spend more.

Physical gift cards are often sold in fixed denominations. As more stores carry gift cards for other merchants, it makes sense that they would carry standard denominations such as $10, $25, and $50. In my grocery store alone, you can purchase about 50 different gift cards. When shopping directly with the merchant that offers a service, you would expect to be able to specify nearly any amount. I could, for example, walk into my nearest Target and get a gift card in any amount that I choose. They just swipe the card, enter the amount, and ask for payment.

You would expect electronic gift certificates to have similar flexibility. I have started to notice that many service providers limit the denominations of the electronic gift certificates. As if that weren’t frustrating enough, they often set the denominations to be different from the cost of services they provide. As an example, the digital photo printing service Shutterfly has prepaid plans that cost $15, $35, and $60. Yet their gift certificates come in $10, $25, $50, $75, and $100 denominations. Sure, you could purchase multiple certificates to get to some of the service amounts, but to cover the service with one certificate means that you would have to buy more than you really wanted. The advantage of buying one certificate is that it makes a more presentable gift. I’ve noticed similar practices with XM Satellite Radio and I’m sure that it exists with many other merchants.

In the electronic age, there is no reason to limit the denominations of gift certificates to discrete amounts. Consumers are forced to overspend when the only amounts offered are different from the cost of the desired service. If the extra amount goes unused, it’s truly a waste of money. That is like forgetting that the store borrowed money from you. Pay careful attention to the amount you spend on gift certificates to ensure that they can be used effectively for the services you intend.

Thursday, May 29th, 2008 at 7:00 am

Comments (2)

  1. Great post buddy. I work for a company that manages and tracks gift
    cards, and I blog about gift card related issues on "http://www.savvywallet.com/dontfollow">savvywallet.com. I
    totally agree with you. Look at it this way. Consumers spent $100B
    on gift cards last year and around $8B was lost/unclaimed. The
    thing of it is, retailers want people to come back and spend more
    money. It’s the name of the game, and it’s how they make money, and
    it’s why they love gift cards. Rarely does it
    equal out to exactly the amount. What’s worse is having .45 cents
    on a gift card, and not knowing what to do with it. It’s money, but
    it’s not money we can use. There needs to be a policy on every card
    that if the balance is less than 10 bucks, you’re able to cash it
    out.

    May 29th, 2008 at 12:52 pm

  2. Steve Zema:

    Electronic Gift Cards are a trend retailers want to promote. This
    is an opportunity for them, thanks to the saving in logistics, to
    provide more value to consumers, especially in the 2009 economy.

    October 19th, 2009 at 6:13 am

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