Gift Card Fees

If you purchased a $25 gift card a year ago from a certain large chain of book stores, it may be worth $20 or less today, without spending a dime. This chain is not alone; many chains and many individual stores are charging a dormancy fee, or a fee for not using the card, in as little as 6 months! Let's clarify -- if I don't use your gift card within a few months of purchase, the store starts taking the money off my card at the rate of $1 - $2 (or more!) per month. That's stealing my money!

Other stores enforce expiration dates instead of a dormancy fee, which would be reducing the money on the card all at once as opposed small amounts on a monthly basis.

When you buy a gift card at a store; you pay for the gift card immediately; however, that gift card doesn't count as a SALE, because technically the store has a liability to you (which is why Cash Register Express and Restaurant Pro Express itemize gift card sales separately from standard sales.)

Why do stores create dormancy fees or expiration dates? Some stores see dormancy fees as a way to escape liability faster and hence turn the money into 100% profit. However, other stores enforced dormancy fees as a practice of financial discipline; the money is in the bank, and at some point they have to turn the liability into a sale to properly allocate for it.

There are three schools of thought on dormancy fees and expiration dates.

1 -- PRO, store benefits. If consumers don't use the card, the store shouldn't have to keep the liability on their books forever; at some point they should be able to fully free up the money without worrying about taking a hit in the future. I'm personally against this; the main purpose of selling gift cards is to get customers in to your store more frequently. You have two people from one card; the purchaser of the card is in your store (and may buy something else for themselves), and the redeemer will also be in your store (likely spending over the amount on the card.) More than likely, they will return again in the future. Don't discourage them by taking away their money.

2 -- PRO, the government benefits. Under the banner of the Abandoned Property Law, some state government are laying claim to millions of dollars in unclaimed gift card funds. According to www.unclaimed.org, the State of Delaware was a big gift card winner last year by collecting over $11 million dollars worth of unused gift card funds. I'm against this; the business owner has to buy the cards, often help design the cards, advertise Gift Cards for your store, and train their employees on how to sell them and how to use them. The business owner earned the money, they should be entitled to keep it.

3 -- AGAINST. If a customer buys a gift card, the funds should be theirs to spend indefinitely. Customers respond positively to good treatment, and are likely to buy more; if discouraged, they will not buy from you again. I am FOR this school of thought. As a consumer, I should be allowed to use the card whenever I want to. As a business owner, I'd want my customers to be happy and shopping in my store or dine in my restaurant more often.

Many businesses agree. The above-mentioned chain of bookstores has removed all dormancy fees and expiration dates from their cards (with positive consumer response); they are not alone, many retailers both large and small have removed dormancy fees and expiration dates (some voluntarily, and others were mandated by state law.)

The majority of State Governments agree. Over half of state governments have either enacted, or are in the process of enacting, legislation that either OUWLAWS gift dormancy fees or at least apply strict regulations to the practice (ex: no fees on a card with over $5 remaining, no fees for a minimum of 12 months.) Expect all remaining states to follow.

How do you handle the accounting of a forever open liability? It depends on the accountant; one practice is to retire the liability by a certain percentage over the years. Unused portions of more recently purchased cards will be sufficient to cover the less frequent redemption of older cards.

There was over $40 billion in gift card sales last year; that's expected to increase by 10% this year. Many of the stores and restaurants that sold gift cards likely saw additional repeat business as a result.

Are you getting a piece of the $40 billion? Cash Register Express and Restaurant Pro Express have built-in gift card tracking with NO TRANSACTION FEES; the feature is built into the latest version of CRE and RPE. All you need are the cards.

POS Nation can help you get gift cards, complete with logo, to keep your customers coming back.