Gift cards: What to consider before you buy

Gift cards seem an easy answer to what to get that hard-to-buy-for friend or family member, and are an important part of doing business – commonly used as a gesture of appreciation to employees and business clients alike.

In fact, a 2012 holiday survey by Deloitte indicates 47 per cent of gift givers in the U.S. intended to go the “prepaid” gift-card route, spending an average of $132. The survey of 5,089 consumers also found gift cards and certificates topped their list of items they preferred to receive – at 45 per cent.

The advantages of gift cards for consumers, who can use them at a range of online and brick-and-mortar retailers and service providers (everything from grocery and department stores, to gas stations, hair and esthetic salons, and music and tech businesses), are obvious.

But consumer advocates highlight endless stories of gift-cards-gone-wrong.

As well, these statistics may change the way you approach this holiday spending season:

• Around $10 billion of the $120 billion spent a year in Canada and the U.S. on gift cards won’t be cashed in, says Victoria-based entrepreneur Leif Baradoy of Kiind, a service that charges companies for the gift cards they send, but only after they are redeemed.

• The Consumers’ Association of Canada, a longtime gift-card opponent, says the rate of unused cards is as high as 40 per cent.

That’s a heck of a lot of waste that remains a major concern despite heavy regulation of gift cards, including through stricter provincial laws introduced in recent years to protect consumers.

The federal Financial Consumer Agency of Canada (FCAC) notes there are two main types of prepaid gift cards:

• "Prepaid cards from retailers can only be used at a single store or group of stores, such as a chain or a shopping mall.

• Other prepaid cards, usually branded with a payment card network operator’s logo, such as American Express, MasterCard or Visa, can be used at most merchants that display the specific network’s log."

While retailer-sourced gift cards tend to sell for face value, certain ones, notably from the credit card companies but also other sellers, include fees that can add between $3 and $7 to your purchase price, and can carry maintenance fees of about $2.50 a month. Even looking up your remaining balance on certain gift cards can come at a cost of a dollar or more.

As well, there’s the take-it-and-tuck-it-away dilemma: You get a card and hold on to it until you decide when you want to use it, but then forget about it altogether –meaning a higher chance it will get lost, tossed or just gather dust.

There are also fraud concerns. For instance, thieves can record the PIN numbers on gift cards that are easily grabbed off store racks, then call toll-free numbers and give the PIN to ask how much of a balance is on the card. This tips them off to which cards have been activated, and they can then be used to make online purchases.

Baradoy, however, says such gift-card woes have led to innovations that help not only consumers, but also the businesses selling them.

“For us, it’s very frustrating for anyone to pay extra processing fees; consumers look at their dollars and say, ‘Does it make sense to pay for things that might not get used?’” he says in a phone interview at his office in the Victoria. “But that’s how some markets get more efficient and innovation tends to take hold.”

As an example, he says, gift-card buying, giving and using are increasingly being done via virtual means such as computers and smartphones, cutting down fraud risk. As well, Kiind’s service, for one, includes location-based reminders to consumers when they are near stores where their gift cards could be used.

For a detailed list of what to consider before you purchase gift cards, check out the FCAC's "Prepaid Cards: 10 things to consider before buying"