With some retailers sitting on eye-watering amounts of other people’s cash, gift certificates are great for your company’s cashflow. After all, what business owner wouldn’t like to receive payment well in advance of having to deliver that service or product?
And that’s probably why you’ll never hear complaints from any of the companies enjoying interest-free credit by way of an estimated USD 23 billion in unredeemed gift certificates in the US alone.
But gift certificates, also known as closed-loop or branded currency, are so much more than just cashflow solutions.
So, how can your business reap these rewards?
What do keep in mind
A company’s success in extracting cash from consumers in what amounts to indefinite free credit doesn’t happen by magic. You’ll need to design and implement an easy-to-use and attractive gift-certificate programme, one that can strengthen existing loyalty and attract new customers. In addition, your gift-certificate programme shouldn’t saddle the consumer with needless terms and conditions. Unreasonable expiration dates are just one example of retail behaviour that can often leave existing and potential new customers feeling like they’ve been taken for fools. And that’s not a great loyalty strategy.
In the US, federal law dictates that gift certificates must have at least five years of validity, with some state laws extending that for even longer – New York state now prohibits expiry within nine years – but that’s not the case everywhere in the world.
Here in the UAE, rules exist around what the UAE Central Bank calls Stored Value Facilities (SVF) – a technical term for any digital channel that can store money – so consumers feel safe and protected when they convert hard currency into a gift certificate.
The gift-certificate business: How big is it?
According to some estimates, consumers in the US spent $30 billion in the run-up to the Christmas holidays last year on gift certificates, with restaurants taking a large share of that advanced spending. Industry data shows that many businesses – including retailers and hospitality – stand to make as much as 80% of their annual gift-certificate sales in the two months leading up to Christmas.
It’s been widely reported that companies are sitting on huge amounts of unredeemed branded currency, but that shouldn’t encourage you to see certificates as an alternative, cheap lending stream to ease cash flow. Of course, you’d be hard pressed to find anybody who objects to a bit of increased liquidity, but business owners shouldn’t lose sight of the many additional benefits a successful programme can deliver.
But what, exactly, are those benefits?
How gift-certificate programmes help your business
Connecting with customers: What happens to humans when gifts are exchanged? Research by neuroscientists at the University of Arizona reveals that the acts of giving and receiving stimulate core areas of our brains relating to pleasure; evidence from brain imaging shows that those core regions stimulate the neurotransmitter, dopamine. In short, neuroscience has discovered that giving and receiving gifts brings pleasure to all parties involved. If your company or brand can become involved and present at that exclusively pleasure-filled ritual, you’ll be able to connect with existing and potential customers in ways that many can only dream of.
Increasing sales and customer acquisition: US financial services firm First Data reported a significant lift for businesses using gift-certificate programmes in an industry report more than five years ago, and its Insights study shows that an attractive gift-certificate programme continues to increase loyalty, build your brand and drive sales. “Our study shows that gift cards or branded currency are not only a potential growth engine for businesses,” says First Data SVP Dominic Morea, “but are becoming the preferred gift for both purchasers and receivers alike”.
The programmes are a double win for companies that implement them; First Data demonstrated years ago that the average overspend on gift certificates amounted to nearly $60. A 2024 report from industry analysts reveals that almost half of all gift-certificate redeemers overspend by 33% in the $0–$40 bracket, and nearly 70% of those redeeming gift certificates in the last year spent more than the value held in branded currency. As the Gift Card and Voucher Association (GCVA) in the UK notes, “for over two-thirds of shoppers, gift cards have become a gateway to indulging in higher-priced items while enjoying savings”.
And the opportunity to open up a new avenue for customer acquisition is one that startups, SMEs and larger enterprises alike can’t afford to overlook; as GCVA chair Siobhan Moore notes, “[gift certificates are] a powerful tool for maximising sales and attracting new customers. As more people opt to gift a retail gift card, they are introducing recipients to new retailers”.
Low maintenance, high impact: Gift certificates aren’t seasonal, even if 80% of sales value is taken in November and December; they are available any time of year and will be used as much for Mother’s Day and Valentine’s Day as for Christmas, not to mention weddings, birthdays, anniversaries and those spontaneous gift-for-no-reason impulses. Once a company has successfully integrated a gift-certificate programme into its broader sales offering, it lasts forever and needs next-to-no maintenance. If you go for a closed-loop system with your business banking account – in other words, certificates that can only be redeemed with the issuer – it’s very cheap to run relative to what companies stand to get back. In any cost-benefit analysis (CBA), the risk-reward equation will likely be tipped very much in favour of your enterprise.
Better liquidity and revenue: Whilst you shouldn’t see your gift-certificate programme simply as a way to enjoy an interest-free loan, having cash in the bank either to ease cashflow hiccups or earn interest can’t be ignored. News that Starbucks rarely has less than USD 1.5 billion in unredeemed customer gift certificates sitting in the bank won’t have escaped astute entrepreneurs.
And yes, some expenditure on gift certificates will, despite consumer protections, inevitably end up in the revenue column on your profit and loss accounts. Why? First, because gift certificate recipients don’t always use the full amount, and second, people just lose them. Astonishingly, over one-third of 18–29-year-olds will lose a gift certificate before getting round to spending it. But it’s not just Generation Z and some Millennials who tend to misplace them; approximately one-quarter of all 30–64-year-olds will fail to redeem gift certificates because they’ve been lost. In short, consumer forgetfulness amounts to a free gift to your company. In 2020, coffee retailer Starbucks recorded USD 165 million in actual revenue from unredeemed certificates due to loss.
Spending more to upgrade: Why it pays to have a programme
With recent research from the Gift Card & Voucher Association (GCVA) and Global Data showing that around two-thirds of those redeeming gift certificates since early 2023 spent more than the value of the card, current trends suggest that gift certificates offer consumers a way to indulge in slightly more expensive acquisitions while benefiting from major savings.
A gift-certificate programme is becoming an increasingly important strategic channel for businesses to draw in existing and new customers and encourage them to appreciate that larger purchases may be within reach.
Business owners currently lacking a gift certificate programme could do worse than give it very careful consideration.
