What are gift cards and how do they work?

Gift cards come in two main forms: closed-loop cards that work at a single retailer or chain, and open-loop cards issued on a payment network (like Visa or Mastercard) that operate wherever the network is accepted. When you buy a gift card, you preload it with a dollar amount; the card’s balance decreases as purchases are made. Some cards are physical plastic or paper, others are digital codes delivered by email or an app. Terms such as expiration dates, fees, and restrictiveness vary by issuer, so reading the card’s terms is important before purchase.

Can buy now pay later services be used with gift cards?

Buy now pay later (BNPL) services are short-term financing options offered at checkout by third-party providers. Whether you can use a gift card with BNPL depends on the retailer and the BNPL provider’s rules. Some checkout flows allow splitting payment between a gift card and a BNPL option or a credit/debit card; others require a single payment method. If a gift card does not fully cover an order, many merchants accept a secondary payment method to cover the remainder, but always check the payment options shown during checkout and the BNPL provider’s terms.

How do gift cards affect payment choices at checkout?

Gift cards add flexibility to payment options but can complicate the checkout process if balance and accepted tender are mismatched. At online or in-person checkout, a gift card is treated similarly to cash up to its remaining balance. Some systems let you combine gift cards with credit, debit, or BNPL; others do not. For merchants, accepting open-loop gift cards may be like accepting any card payment, while closed-loop cards may be processed internally. For consumers, keeping track of card balances and activation status is important to avoid declined transactions and extra fees.

When should you use gift cards for shopping?

Gift cards are useful for gifting someone control over their purchase, for budgeting personal spending, and for taking advantage of retail promotions. They’re convenient for online shopping, especially when delivered as e-gift cards, and can be useful for purchases from local services or specialty stores. However, be mindful of potential limitations: some gift cards cannot be redeemed for certain items, may have activation or maintenance fees in specific jurisdictions, and may not be refundable. For larger purchases or when using BNPL, plan how you’ll combine payment methods to avoid transaction issues.

What are the finance considerations and risks with gift cards?

From a finance perspective, gift cards represent prepaid credit and can affect personal budgeting positively by limiting spending to a set amount. Risks include losing unused value if a retailer closes or if the card’s terms include fees. Secondary markets (reselling or trading unwanted cards) exist but carry fraud risk and price variation. Tax treatment varies: in many places a gift card is not taxable when received, though purchases made with it may be. Consumer protections and rules about expiration or dormancy fees differ by country and state; check issuer terms and local regulations to understand your rights.

Gift cards also raise operational and financial considerations for businesses. Issuers must account for outstanding card liabilities, handle potential fraud, and design redemption processes that integrate with existing payment systems. For consumers using multiple payment methods, including BNPL or loyalty points, clear communication at checkout reduces confusion and abandoned sales.

Practical tips for buying, using, and securing gift cards

When buying gift cards, verify whether the card is open-loop or restricted to a retailer, confirm any activation or maintenance fees, and keep receipts. For digital cards, store emails and activation codes securely. Before combining a gift card with buy now pay later or another payment method, check the merchant’s accepted payment flows. If a gift card is lost or stolen, contact the issuer promptly—some issuers can freeze remaining balances if you provide proof of purchase. For budgeting, consider loading only the amount you plan to spend and tracking balances through the issuer’s website or app.

Conclusion

Gift cards offer convenient, flexible payment options for gifting, budgeting, and shopping, but they come with rules and risks that vary by issuer and location. Understanding card types, how they interact with other payment methods such as buy now pay later services, and the finance implications—fees, redemption limits, and protection policies—helps consumers and businesses get the most value while avoiding common pitfalls.