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Compare Set Value vs. Reloadable Gift Card Systems

If you're either implementing a gift card system for the first time, or looking to change your current system, you face the choice between set value gift cards and reloadable gift cards. It may seem like a gift card is a gift card, but there are key differences between the two, and each has its own advantages.

The Advantages of Set Value Gift Cards

Set value gift cards naturally increase profits. They offer the opportunity to not only expand your brand past your typical customer base, but studies prove that 72 percent of gift card recipients spend an average of 20 percent more than the value of the gift card. People tend to be more generous in their purchases when they're using "free" money to make them. This translates as buying the accessories to go with that dress, cocktails to accompany dinner, and myriad other upgrades relevant to the vendor.

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You also receive incremental income, as around $5 billion worth of gift card amounts go unused each year. This "spillage" typically translates as unused leftover amounts on a gift card (probably from that 28 percent of people who do not spend more than the gift card's value).

With the right gift card system, businesses may also use gift card purchases as a way to track customers' purchasing habits. This is vital information to use in targeted marketing campaigns.

The Advantages of Reloadable Gift Cards

Sometimes called pre-paid gift cards, reloadable cards are exactly what they sound like. The person buying the card spends a set amount, say $100. Then, either the original purchaser or the recipient may add funds to the card, allowing the cardholder to continue making purchases long after the original amount has been spent. These offer great potential for repeat business.

Customers like reloadable gift cards for a variety of reasons, but budgeting is a big one. Parents often use them as a way to control their kids' spending, or to ensure that spending follows the intention of the parent. For example, if you send your college kid $100, there's no guaranteeing he or she will spend it on the gas and groceries you intended. A reloadable gift card offers the perfect solution.

People also choose them to budget their own spending. If a family budgets $100 per month for eating out or going to the movies, buying reloadable gift cards makes adhering to that budget easier. And, if your business is the one they choose for those outings, you get that revenue every month.

Pros and Cons for the Consumer

Set value gift cards seem like the obvious choice from a consumer standpoint. Fees for use are rare and minimal. Even so, more consumers choose reloadable gift cards for their flexibility, especially when you factor in cards tied to a particular bank or credit card company. These cards often serve as substitutes for bank accounts, or as a savings mechanism. For example, when planning the family vacation, depositing funds onto a prepaid card sets aside money in a way that consumers are less likely to access (so long as they leave that card at home, instead of carrying it around in their wallet).

The downside of prepaid cards can be stated in one word: fees. Prepaid cards typically feature a variety of fees. The purchaser may pay a fee when buying the card, ranging from around $3 to $10. In addition, users often feel the sting of monthly service fees, as well as charges every time they use the card. These vary widely by card, so look closely at the fine print.

Both set value gift cards and reloadable gift cards also run the risk of being lost or stolen. If you register the card, you may get your money back (after paying a small fee). State laws play a large role in determining fees and protection against loss or theft.

If the card includes a credit card logo, such as Visa or MasterCard, standard credit card laws protect it, but even these protections vary according to who issued the card and laws particular to your state. If you bought the card through your bank, however, it comes with FDIC insurance. Register it upon purchase, and always read the fine print!

The Takeaways

Both businesses and consumers benefit from gift card programs. The type of card you offer depends largely on the type of business you operate. Before choosing a system, ensure it works with the payment system you currently operate. Then, make sure to promote it well. If your customers don't know you offer gift cards, they can't buy them.

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