Prepaid cards are the fastest-growing non-cash payment method in the U.S. and their growth is set to greatly accelerate in the post-Durbin Amendment world. As card issuers devise ways to drive customers away from unprofitable debit cards, prepaid is sure to be one of the targeted destinations for the converts, because it is exempted from the interchange fee limit.
All prepaid cards begin their life when consumers load them with money. Then every time the card is used for payment, the transaction amount is deducted from the card’s remaining balance. When the funds are used up, some prepaid cards allow cardholders to reload them, while others do not. Gift cards fall into the latter category, which is their main distinguishing characteristic. The following Q&A goes over the key features shared by all Visa- and MasterCard-branded gift cards.
15 Gift Card Features Everyone Should Know
- What is a gift card? Gift cards are non-reloadable prepaid cards that can be used anywhere the card brand whose logo they display (Visa, MasterCard, etc.) is accepted. The stored dollar amounts can vary.
- How is a gift card activated? The card is automatically activated at the time it is purchased.
- Can a Visa- or MasterCard-branded gift card be used at different merchants? Yes, any gift card that features the logo of one of the Associations can be used at every location that accepts that Association’s cards.
- Can a gift card be used for online payments? Yes, it can, provided the merchant accepts the brand. However, most e-commerce merchants use the Address Verification Service (AVS), so the card will need to first be registered and the cardholder will need to link her billing address to it. Customer service can be contacted at the number on the back of the card for instructions on how to do that.
- Can a gift card be personalized? Yes, Visa and MasterCard gift cards can be personalized when ordered online, but not when purchased at a physical merchant location.
- What payment option should be selected at the POS terminal? When asked to choose between “debit” and “credit,” the cardholder should select the credit option.
- What if the transaction amount exceeds the available card balance? In such cases the merchant can request a partial authorization for the amount available on the gift card and another payment form (e.g. cash, check or another card) can be used for the remaining balance. This type of transaction is known as “split-tender.”
- How can the cardholder check the card’s balance? The remaining balance can be obtained from the merchant or by calling customer service.
- What are the fees? The cardholder is charged no transaction fees when using a Visa or MasterCard gift card, but there are other fees, including for inactivity, cash out, replacement, etc. Check with customer service for details. The merchant’s fees are listed in its processing agreement.
- Is cash back available? No, gift cards offer no cash back option.
- What happens if a gift card is lost or stolen? The cardholder should immediately report the incident to customer support. A replacement card will then be issued and any available balance will be transferred to it, after a lost or stolen fee is deducted (a new card issuance fee may also apply).
- Can a gift card be reloaded? No, it cannot.
- Does a gift card have an expiration date? Yes, the card expires on the date shown on the front of the card or when the balance is used up, whichever comes first.
- What should you know about using a gift card at restaurants, hotels and for car rentals? The authorization approvals for such transactions are for amounts greater than the sales amount by up to 20 percent. This additional amount is used for authorization purposes only, but it reduces your available balance until the final amount is calculated and the transaction settled.
- What should you know about using a gift card at gas stations? Using a gift card to pay at the pump requires a minimum balance of $75, although only the actual transaction amount will be charged to the account. If the available balance is less than $75, the card can still be used for a fuel purchase, but the payment needs to be made inside the gas station.
Once you’ve accounted for the above characteristics, using a gift card at the point of sale is much the same as using any other payment card.
From a merchant’s perspective, accepting a Visa or MasterCard gift card is usually indistinguishable from accepting any other payment card. The exceptions are the special cases mentioned in items 14 and 15 above and when the available balance is less than the transaction amount.
To avoid unnecessary confusion at the checkout, you need to know these special rules and learn how to manage partial authorizations and process split-tender transactions. Your goal should be to make checking out with a gift card as uneventful as using any other payment method.
Image credit: Flickr / 401(K) 2013.