What are gift cards and how do they work?

Gift cards are essentially stored-value cards loaded with a monetary balance that can be spent at participating merchants. Closed-loop gift cards are valid at a single retailer or brand, while open-loop cards run on major payment networks and can be used widely. Digital gift cards include codes or QR links that are redeemed online or in-store. Redemption reduces the stored balance, and some cards allow partial use across multiple transactions. Terms such as expiration, fees, and return policies vary by issuer and by local regulations, so checking the card terms is important before purchase and use.

Can you use buy now pay later with gift cards?

Using buy now pay later (BNPL) together with gift cards depends on the merchant and checkout flow. In many online or in-store checkouts you can apply a gift card first to reduce the total, then select BNPL to pay any remaining balance. However, some BNPL providers require a primary payment method on file or disallow combining with certain promotions or prepaid products. Gift cards cannot themselves finance a BNPL plan; they only reduce the amount you owe. Always review the merchant’s payment options and the BNPL provider’s terms to confirm whether combining methods is permitted.

How do gift cards fit into payment systems?

Technically, gift cards function as prepaid payment instruments. Closed-loop cards are managed by the merchant’s point-of-sale and gift card systems, while open-loop cards use payment network rails similar to debit or credit transactions. For refunds, merchants may reissue balances to the same gift card or a new card depending on policy. Many stores support splitting payments, so shoppers can combine a gift card with credit/debit, BNPL, or other payment methods. It’s also common for mobile wallets to store digital gift cards, making redemption faster at checkout and enabling balance checks in your account.

Are gift cards useful for shopping and gifting?

Gift cards are popular for shopping and gifting because they offer flexibility and simplicity: recipients can choose what they want, and givers avoid mismatched gifts. Retailers use gift cards for promotions, customer acquisition, and corporate gifting. Digital gift cards are handy for last-minute gifts and can be tailored for experiences, subscriptions, or local services. That said, merchant-specific cards limit choice, while open-loop cards provide broader shopping options. Buyers should verify redemption channels, blackout dates, and whether the card works for online purchases or only in physical stores.

What financial considerations should you keep in mind?

From a finance perspective, gift cards carry considerations for both consumers and businesses. Consumers may lose value through unused balances (sometimes called breakage), expiration fees where allowed, or chargeback limitations. For businesses, accounting must treat sold gift cards as a liability until redeemed, and fraud risk requires controls on issuance and balance changes. On a household level, gift cards can aid budgeting by earmarking funds for specific categories, but they also trap purchasing power if not used promptly. Keep records of balances and receipts, and treat high-value or widely usable cards as valuable financial instruments.

Conclusion

Gift cards are versatile payment tools used for gifting, shopping, and incentives, and they interact with other payment methods in specific ways. Whether combining a gift card with buy now pay later or using it alongside a credit card, rules vary by merchant and provider. Understanding card type, terms, balance management, and the financial implications helps consumers and businesses make informed choices and avoid unexpected restrictions or losses.