Gift cards are a large business, and a meaningful proportion of the value loaded onto them is never spent. That unspent balance has a name in retail accounting and it is a genuine revenue item.
Breakage
The industry term for unredeemed value.
Estimates of the proportion never spent vary by market and by card type and are consistently significant.
Retailers recognise this as revenue under accounting rules once redemption is considered unlikely, which means unspent balances become profit.
Partial balances are a particular contributor, since a small remainder is inconvenient to use and is frequently abandoned.
Expiry and the rules
Which have tightened in many jurisdictions.
Minimum validity periods are mandated in several regimes, commonly several years, and in some places expiry is prohibited entirely for certain card types.
Inactivity or dormancy fees, which reduce a balance over time, have been restricted or banned in a number of jurisdictions.
Which means many cards last considerably longer than people assume, and a card believed expired is worth checking.
The rules differ between retailer-specific cards and general-purpose prepaid cards, with the latter frequently permitted more fees.
The insolvency risk
The scenario that produces the most loss.
Where a retailer fails, gift card holders are generally unsecured creditors, ranking behind secured creditors and frequently receiving nothing.
Administrators sometimes continue to honour cards, occasionally at partial value, and sometimes do not.
Which means a gift card is an unsecured loan to a retailer, and holding one for a long period carries a real risk that is invisible.
The practical implication is straightforward. Spend them promptly.
The scam dimension
Worth stating because it is widespread and specific.
Gift cards are a common instrument in fraud, precisely because they are difficult to trace and irreversible once the code is shared.
Any request for payment by gift card, from any authority, employer, service or acquaintance, is fraudulent. No legitimate organisation collects payment this way.
Card tampering in shops also occurs, where codes are recorded from displayed cards and monitored for activation.
Buying from behind a counter, checking packaging for signs of interference, and registering the card where possible are the practical defences.
The resale market
An option for cards you will not use.
Platforms exist buying unwanted gift cards at a discount to face value, which for a card you would otherwise not use is a real recovery.
The discount varies by retailer, with widely useful cards attracting better rates.
The same platforms sell discounted cards, which is a genuine saving on purchases you were making anyway, with the caveat that a card bought at a discount carries the same insolvency and fraud risks.
Buying from established platforms with a guarantee is the reasonable precaution.
Managing the ones you hold
Practical steps.
Record the numbers and balances somewhere central, since physical cards are lost and forgotten.
Add them to a digital wallet where supported, which keeps them accessible.
Check balances periodically, which most retailers allow online.
And use them for planned purchases rather than saving them for something special, which is the behaviour that produces breakage.
The partial balance problem
Where most value is actually lost.
Small remainders are the most commonly abandoned, and combining a card with another payment method for a larger purchase is the way to clear them.
Some retailers permit combining multiple cards in one transaction, and some do not, which is worth establishing.
And some jurisdictions require cash redemption of small remaining balances, which is a right that exists in a few places and is almost never exercised.
Whether to give them
An honest note, since the whole category exists for gifting.
A card restricts the recipient to one retailer and carries the risks above.
Cash does not, and is frequently considered less thoughtful, which is the entire reason the category exists.
A general-purpose prepaid card sits between and typically carries fees.
Which is a social question rather than a financial one, and the financial answer is unambiguous.
Corporate and promotional cards
A category with its own issues.
Cards received as rewards, rebates or promotional incentives frequently carry shorter validity and more restrictions than retail gift cards.
Prepaid cards issued as rebates in particular have attracted regulatory attention over fees and expiry.
Which means reading the terms on a card received rather than bought is worthwhile, since the protections that apply to retail gift cards may not extend to them.
The regulatory direction
Worth noting since it is moving.
Minimum validity periods have been extended in several jurisdictions, dormancy fees restricted, and disclosure requirements strengthened.
Proposals to protect gift card holders in insolvency, by requiring funds to be held in trust rather than used as working capital, have been made in several places and have generally not been adopted.
Which means the insolvency risk remains the significant unaddressed issue, and the practical response is unchanged — spend them promptly.