WHAT a lovely gift. Not for you, of course 鈥� you don鈥檛 really want to venture inside the local Acme tattoo and piercing parlour, let alone make use of its services. But because you are never going to use it, Uncle Derek鈥檚 desperate last-minute purchase, the prepaid electronic gift card entitling you to an Acme shoulder snake or tongue stud, is a great gift to the store: free money.
Gift vouchers 鈥� the low-tech, paper version of the gift card 鈥� have always been a boon to retailers. We mutter thanks to whoever bought them, surreptitiously try to find someone willing to swap them for cash and, having failed, stick them in the back of our wallet, from where 鈥� all too often 鈥� they never emerge. If they are issued with an expiry date, so much the better for the retailer: then they know exactly when your grandmother鈥檚 money is theirs to keep.
Somehow, the disappearance of this cash into retailers鈥� pockets seems innocuous, our own fault. It鈥檚 practically a holiday tradition. But with the growth of electronic gift cards, the cash is disappearing faster than ever 鈥� and creating a legal headache. Imagine presenting your paper voucher to a retailer and being told the face value has been depleted by a 鈥渟ervice charge鈥�. Or that the voucher is now worthless because it has a hidden, electronically encoded expiry date that Grandma Rose forgot to tell you about. Raise a glass to progress: walking away with your money is so much easier when the cash is digital.
Advertisement
Once a sort of holiday afterthought, pre-paid electronic gift cards are now everywhere. According to TowerGroup, a Massachusetts consulting firm, American consumers are expected to spend $55 billion on gift cards this year. On the European side of the Atlantic, gift cards have been slower to get started, but they are on their way. One of the first to adopt them in the UK was the department store Harrods, which introduced the cards in November 2004. Already, Harrods sells twice as many gift cards as traditional paper vouchers. 鈥淧eople seem to spend more money on the cards than on the vouchers,鈥� says Harrods spokeswoman Valentine Labriffe.
There is good reason for that. A card fits nicely in your wallet and doesn鈥檛 get torn or bent. It is a more tasteful present than cash, and somehow more substantial than paper vouchers. Like postage stamps, gift cards with attractive designs or portraits of your favourite singer are becoming collectables.
Gift cards offer benefits for merchants too. For a start, they can levy a service charge. In the US, some card issuers are charging fees on cards that go unused for several months. This practice already has consumers and their advocates crying foul. 鈥淲hen I talk with people about it, they say, 鈥楾his is stealing!'鈥� says Dan Horne, a professor of marketing and 鈥済ift-card guru鈥� at Providence College in Rhode Island. 鈥淧eople are very surprised to find out that the issuers can get away with it.鈥�
And then there鈥檚 the not-so-obvious expiry date. While paper vouchers with an expiry date have it printed or written on them, plastic gift cards don鈥檛. It鈥檚 usually in the terms and conditions, which may only be available on the seller鈥檚 website.
Up to 10 per cent of the funds on gift cards may vanish into the store鈥檚 coffers. 鈥淚t depends on the category of merchant,鈥� Horne says. 鈥淔or Macy鈥檚, it鈥檚 less than 5 per cent, for a grocery store it might be 2 per cent. For a specialty store, a tattoo studio for instance, it may be 10 per cent.鈥� Whatever the percentage, this 鈥渂reakage鈥� amounts to free money for the retailer. Consumer complaints have led several US states to ban or restrict expiry dates and service fees. The first such law was passed in California, which banned expiry dates on gift vouchers in 1996, when cards were still just a blip in the market. The state then banned service fees on gift cards in 2004, with one very limited exception: cards that have been inactive for 24 months, with a balance of $5 or less, may be assessed a $1 monthly fee.
But there are still huge gaps in the laws concerning fees and expiry dates. Gail Hillebrand, an attorney for Consumers Union in California, says that 32 states still have no legislation at all. The federal government has shown very little inclination to act. In 2004, New York congressman Chuck Schumer introduced a bill in the House of Representatives modelled after California鈥檚 law, but it went nowhere. Some companies are making a pre-emptive strike against the bad publicity gift cards have already stirred up. Sears, for instance, eliminated expiry dates on its gift cards in December 2003.
In the UK, the gift card phenomenon is about seven years behind the growth curve in the US. The UK鈥檚 Office of Fair Trading says that although it has so far received few complaints about unfair charges or unexpected expiry, there are no regulations over service fees and expiry dates yet. The WH Smith gift card, for example, does not have an expiry date, but the Harrods card does, although it only expires after two years with no activity (even a balance query counts as activity), and Harrods will replace expired cards anyway. The only way you can lose your money, as with cash or paper vouchers, is to lose the card.
鈥淲hen I talk about it, people say, 鈥楾his is stealing!鈥� They are surprised the issuers can get away with it鈥�
Not everyone is so accommodating, though. If a store won鈥檛 take your gift card, Horne says the best idea is to 鈥渟tomp your feet, kick and scream鈥� 鈥� eventually the manager will probably issue you a new one. In the end, he says, consumer opinion and experience will be the decisive factor for the gift card market. 鈥淚f I get a gift card this year and like it, then I will give it to two people next year. Then each of them will give a card to two more people. That鈥檚 the way the business grew in the US, and the way it will grow in Europe.鈥�
Of course, if the growth of gift cards is unstoppable, you鈥檒l need a strategy to cope with unwanted cards, just as you did with unwanted paper vouchers. Fortunately, the digital era makes this easier. Where you once might have had to barter unwanted vouchers with family or friends, you can now auction them to the whole online community.
Online auction house eBay lists a couple of thousand gift cards for sale at any given time, and you can expect to find even more after the holiday. Don鈥檛 expect to sell your card for face value, though. For a better deal, you might want to try or , where, for a small listing fee, you can trade cards with other unhappy gift recipients. It鈥檚 worth a try; there鈥檚 got to be someone out there who鈥檇 just love an Acme tongue stud.
