Gift Cards: Why I Hate “Open-Loop” Cards
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Dear Uncle Robert,
I know you mean well. I really do appreciate the fact that you still send a gift over the holidays even though I am now old enough where it is no longer an “obligation.” But please reconsider giving me these Visa-branded $25 gift cards, otherwise known as open-loop gift cards since they can be used anywhere that Visa is accepted.
Open-Loop Cards Make the Buyer Look Silly
For one thing, it pains me that anyone, especially a family member of mine, would buy these things, given the activation fee associated with it. Yeah, it is only a few dollars, but it seems silly that you paid $3 or $4 dollars on a $25 gift card. I was looking at American Express Gift Cards the other day, and the most basic version has a $4 activation fee. Yikes. You really could have simply given me cash (which, last I checked, has no activation fee), or even a normal gift card to a major merchant.
Really, this point isn’t so much for me as it is for you. I hate to see you waste money.
Open-Loop Cards Make the Recipient, Me, Go Crazy, Part One: Using Them
But this point has a lot more to do with me. The appeal of these things is clear: I get to use your money on a gift for myself at (virtually) any merchant, all with the convenience of a credit card. However, that rosy argument glosses over how difficult it is to maximize the value off of these cards.
As I see it, you basically have two options:
- Try to use the gift card up to its value, and then let any residual money go. For example, with a $25 gift card, I might be able to get to around $23 or $24 easily without going over $25. In that case, using the gift card is easy — just hand it to the cashier, and they’ll hand it back. From a pain perspective, this is the best option, but from a financial standpoint, since I’m throwing away money, its the worst.
- Convince a cashier to do a “Split-Tender” transaction — this is where the merchant charges as much as possible on to the gift card, and then you pay the rest using some other method. Obviously, from a financial standpoint, this is the best option, but from the pain perspective it can be pretty high:
Why Split Tender Transactions Are Painful
Split-tender transactions are easier said than done.
- For one thing, merchants do split-tender transactions all the time with their own gift cards, but with those merchant gift cards its easy for them to tell how much is left. When you’re dealing with open-loop gift cards, its your responsibility to know how much is left on the card, which can be difficult given all of the maintenance fees and transactions that can reduce the value. If you make a mistake and use a lower value, you’ll leave money unused. If you make a mistake and use a higher value, you’re charge will be declined, which is an annoying and embarrassing nuicenance.
- Additionally, some stores won’t do split-tender transactions with these Open-Loop gift cards. Of those that will, some will require the rest of the transaction to be done in cash, and I hate cash.
- Finally, you have to explain to the cashier what you want to do. This may seem like a trivial point, but when I’m about to check-out, I don’t want to have to slow down the line trying to explain to the teenager behind the counter what I want done.
Split-tender transactions are certainly possible, but in my mind are simply unpredictable and annoying.
Open-Loop Cards Make the Recipient, Me, Go Crazy, Part Two:Maintenace Fees
Finally, these Open-Loop gift cards are prone to having more maintenance fees associated with them than other types of gift cards. An article by Jeremy Simon, Gift card survey shows it pays to comparison shop, over at CreditCards.com, notes that “Closed-loop cards from retailers rarely carry fees or expiration dates. The retailers can make a profit from the merchandise purchased. Open-loop cards from the banks or payment networks can’t profit from merchandise, so they have more fees and conditions.” While that certainly makes some sense from a financial standpoint — I can’t help but think that you already pay an activation fee for these cards — the fact remains its a good reason to not go with Open-Loop cards.
So, please, Uncle Robert, next time around, reconsider whether or not these Visa-branded gift cards are such a good idea.
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