The 5 Pitfalls of Corporate Gift Cards
And what you should be doing to avoid them
Corporate gift cards are one of the most popular tools for employers attempting to create an element of employee loyalty. $188 billion will be spent on gift cards in the US in 2022. Gift cards appear to be the right balance of something personal, yet easy and simple. Unfortunately, these cards come with a lot of problems. Here are six factors to consider before giving away gift cards to your staff or partners:
1. Fees for the privilege.
Many gift cards charge an up-front fee. A recent survey of 62 gift cards by Bankrate.com found that general purpose gift cards charge purchase fees ranging from $3.95 to $6.95. The smaller the gift card value, the higher percent you’re paying for the gift card in fees.
Check on monthly maintenance fees that are charged if the gift card isn’t used after some time period. Bank and credit card-issued gift cards are the most likely to charge this type of fee. The worst offenders are the payment companies. Typically, they will charge a fee after a few months until they destroy all value remaining on the gift card.
2. Use them or lose them.
Even the most consumer-friendly rules can’t protect employees from their own forgetfulness. If a gift card gets tucked away in a drawer it’s not creating value. It’s also not reinforcing the behavior that earned the card. This is called “breakage”. Up to 20% of cards expire each year. In 2022, there are $15 billion in unused gift cards waiting for some attention. Bankrate found that millennials are more than twice as likely to lose physical gift cards than older generations. When an employee realizes their gift card can’t be used it can feel worse than not getting anything.
3. Take advantage of extra security perks.
Gift cards can be more secure than simply giving cash, since some gift card issuers offer to replace cards if they are lost or stolen. Even more secure are companies who provide payment cards that can be replaced for free. With gift cards, recipients have to register their cards in advance, so be sure to read the fine print that comes with the cards and take any necessary steps. This can be a hassle for your staff.
4. Know where your employees or partners like to shop.
Since store-branded gift cards tend to come with fewer fees than bank or credit card-branded ones, gift card givers can save money by purchasing store-specific cards, as long as they know the shopping habits of the person they are gifting. For example, Target gift cards work well for some budget-minded staff and Amazon gift cards for online shopping lovers. Unfortunately, it can be very difficult to know which is which. Often, companies give cards based on what they think staff like, only to realize their mistake after the fact.
It’s also very difficult to stand out among a sea of gift cards. When an employee gets one more Starbucks gift card, it often goes into the pile of gift cards. The colleague you wanted to thank immediately forgets where the card came from or what inspired the gift. An entire industry has grown to help people organize their stacks of gift cards.
5. Look out for gift card rules.
Gift cards feel easy and simple. The truth is they can be complex. Because they are small and super portable, they can easily be lost or, unfortunately, stolen. Few companies keep close track of gift cards. Many keep a stack of them in a drawer. Finance organizations don’t have a line item for gift cards, so they get lumped into another cost bucket without clear tracking and reporting. Many companies are not even aware of the cost of gift cards throughout the enterprise. These elements create a scenario where companies can accidentally become guilty of failing to account properly for both the cost.
Employees also must pay taxes on gift cards. Companies rarely account for the tax implications of giving gift cards, which can become a problem, especially when no one knows how much is actually being given out.
When you are considering, or re-considering a corporate gift card program keep these elements in mind.
Work with a payment solutions provider that doesn’t charge any purchase fees. They are out there. Payment solutions companies typically make money on breakage. That economic incentive is diametrically opposed to your goals. That provider makes more money when your staff lose or misplace their cards. Find a better partner who is aligned to your goals.
Don’t get fooled by the red-herring claim that “my program has the most gift cards”. This is silly and doesn’t matter. What employees want is flexibility. Work with a partner that provides a payment card that can be used anywhere. Your staff doesn’t want another Outback Steakhouse gift card.
While employees want flexibility, they also really appreciate the “gift” concept. Work with a partner that allows you to send a cup of coffee, for example, but doesn’t require a Starbucks gift card. Send the cup of coffee tells your staff you see them and have an idea of what they might appreciate. Keeping the payment card flexible allows your staff to buy the coffee wherever it makes sense. You and your team get the best of both worlds!