Mastercard Gift Card

Video Transcript: Why Some Gift Cards Cost Money to Buy

Hi, I’m Shelley Hunter, Gift Card Girlfriend here at Gift Cards.com, and one of the questions I’m often asked is why it costs money to buy a bank issued gift card when store and restaurant gift cards are free—meaning you don’t pay more than the dollar amount loaded onto the gift card.

To answer that question, I first need to explain the difference between open loop and closed loop gift cards. Open loop gift cards such as Visa and Mastercard can be used almost anywhere debit cards are accepted. Closed loop gift cards, the gift cards issued by stores and restaurants, can only be redeemed at the merchant’s place of business.

Because closed loop gift cards are guaranteed revenue for the merchant, their gift cards are typically free to activate. It’s not that the gift card program itself is free, it’s just that merchants have rolled the program’s costs into other expenses rather than charge consumers directly. They do this because gift cards drive additional sales as recipients come into the stores to redeem their gift cards, often overspending the value of their gift cards as well. In addition, the merchant generally can structure its gift card program to be able to keep most of the unredeemed balances.

Now let’s talk open loop gift cards. Mastercard gift cards, for example, can be redeemed in stores, online or via telephone, anywhere in the U.S. Mastercard debit cards are accepted, including places such as restaurants, clothing stores, grocery stores and more. Companies that sell open loop cards can’t lure customers back into their stores to overspend the gift card on merchandise like a store would, so they charge an activation fee to cover the cost of the gift card program.

I tend to think of the activation fee as the price of flexibility–it’s a small amount to pay for the convenience of getting to use the gift card wherever I want.

I’m Shelley Hunter, Gift Card Girlfriend at Giftcards.com and that is why bank issued gift cards cost more than others.