What is a Gift Card?

A Gift Card is a prepaid, non-cash payment instrumentloaded with a fixed value and intended to be given as a gift to another person. The recipient can use the card to make purchases within the allowed acceptance scope.

Gift cards are usually non-reloadable and can be either closed-loop (single merchant) orsemi-closed / open-loop depending on the program.

Why Gift Cards Exist

• Easy and flexible gifting alternative to cash
• No need to choose a specific product
• High brand engagement and loyalty
• Simple distribution at scale
• Popular during festivals and campaigns

Types of Gift Cards

• Closed-Loop Gift Card: Single brand or merchant
• Semi-Closed Gift Card: Partner merchant network
• Open-Loop Gift Card: Wide acceptance (POS/Online)
• Physical Gift Card: Plastic card
• Digital / E-Gift Card: App, SMS, or email based

Gift Card vs Other Prepaid Cards

• Gift cards are typically non-reloadable
• Used by a recipient different from purchaser
• No personal banking relationship required
• Limited lifecycle and balance

Entities Involved in Gift Card Transactions

• Purchaser: Buys the gift card
• Recipient: Uses the gift card
• Merchant / POS / Online Store: Acceptance point
• Gift Card Processor: Manages gift program
• Prepaid Ledger: Stores gift card balance
• Settlement System: Merchant reconciliation

Gift Card Issuance Flow

1. Purchaser selects gift card value
2. Payment made via cash, card, or online
3. Gift card record created in system
4. Initial balance credited to ledger
5. Card delivered physically or digitally

Gift Card Balance Model

Gift cards operate on a fixed-value prepaid ledger. The balance can only decrease with usage and cannot be increased.

• One-time funded balance
• No reload allowed
• Partial spends supported
• Balance tracked per transaction

Gift Card POS Transaction Flow

1. Recipient presents gift card
2. POS sends request to gift processor
3. Processor validates card and balance
4. Amount deducted from ledger
5. Approval sent to POS

Online / E-Commerce Transaction Flow

1. Recipient enters gift card number or code
2. System validates card and remaining balance
3. Order amount deducted
4. Confirmation sent to user

Partial Spend & Balance Carry Forward

Gift cards support partial spending. If the transaction amount is less than the available balance:

• Remaining balance stays active
• Can be used for future purchases
• Ledger updated after every spend

Common Decline Scenarios

• Insufficient balance
• Gift card expired
• Invalid or already used card
• Merchant restriction violation

Expiry & Regulatory Considerations

Gift cards usually have an expiry date defined by issuer policy or local regulations. After expiry:

• Remaining balance may expire
• Refunds may or may not be allowed
• Issuer may reclaim unused funds

Clearing & Settlement

Settlement in gift card systems is typically internal or between the issuer and participating merchants.

• No interbank settlement required
• Simple reconciliation
• Low operational cost

Advantages

• Extremely easy to distribute
• High customer satisfaction
• Low fraud risk
• Great marketing tool

Limitations

• Limited acceptance scope
• No reload or cash withdrawal
• Expiry-related balance loss

Summary

Gift Cards are simple, powerful, and widely used prepaid instruments that enable controlled value gifting while driving customer engagement and merchant loyalty.