The History of Gift Cards

Whoever came up with the idea of gift cards was a marketing genius. The idea of taking someone’s money (which is valid anywhere) and giving them a certificate redeemable only at your restaurant was pure brainstorming. It made gift giving easy and guaranteed restaurant profits through either redeemed or lost certificates.

The problem with paper gift cards was that they took time to issue, track, and redeem. Usually the certificates were kept in a sell gift card in ghana safe place and access was limited to a very few. When a certificate was sold, the issuance took some time, interrupting the manager/owner to issue the certificate.

Tracking the certificates, which were usually sequentially numbered, was vital as gift certificates could be stolen, counterfeited and then redeemed, creating a loss rather than an additional gain. Because of these issues, many restaurants stayed away from gift cards, missing out on some tremendous marketing opportunities.

Magnetic cards have replaced paper documents in recent years. Credits were kept in a database, which were linked to the card via a number in the magnetic strip. Some credit card companies have jumped on this bandwagon, offering gift card programs that work similarly to a credit card. The balances are kept externally at the credit card processor. The processor then charges a transaction fee to add/redeem the gift card. This fee can range from $0.15 to $35 per card swipe . For small card transactions like coffee houses, these fees go deep into sales profits.

A recent trend is to house gift card balances at the store level. There is no transaction fee and virtually no wasted time completing the transaction outside of the store. Any amount can be added to the card’s balance, making the card reusable and non-disposable. Your logo is on the card and reminds the customer of your restaurant every time they look in their wallet.

The need for gift cards

Restaurants must be able to securely sell, track, and redeem gift card transactions with no transaction fees. Balances should be kept in-house. The customer should be able to top up their balance at any time, making the gift card your own private debit card system.

The cards should be reusable and branded with your logo to provide a constant reminder of your restaurant.

The solution for managing gift cards

Many point -of-sale products now have optional gift card modules that track numbered paper certificates as well as issue, track, redeem, and report magnetic gift cards. With the optional magnetic card reader and magnetic cards properly formatted for the software, you can take full advantage of this powerful marketing tool.

The gift cards should be branded with your logo for promotional purposes. They can also be wrapped for a nicer gift presentation. Some companies have even developed reciprocity programs with other non-competing companies to issue gift cards in each other’s stores.

The cards have no value until sold, eliminating the problem of theft, counterfeiting and stolen certificate redemption.

The cards are reusable after full redemption. The customer can also top up the balance creating your very own debit card scheme where frequent guests can continue to use/reuse their card on future visits. This has become huge in coffee shops where customers use their cards to shop daily.

Some point-of-sale products maintain store-level balance sheets for individual store operators. There is no need to process the gift card outside of the store as the balances are adjusted up or down at the end of the transaction. There are no transaction fees with this type of data storage.

For multiple store operators, some point-of-sale products have the ability to store gift card balances in a central location, with each store being able to access and update gift card balances via high-speed internet connections. Although the funds are kept off-site, our system still incurs no transaction fees.

The advantage of gift cards for you

The potential for huge profits, additional sales, and repeat customers are the compelling reasons to sell gift cards. The ability to add private labels to the cards, add credit, and create your own debit card system makes using gift card magnetic cards essential to profitable restaurant operations.

Abandoned cards are also a huge area of realized wins. If balances go below $1.00, the system still recognizes them as active. However, customers tend to abandon their cards when the balance falls below a certain amount. For some larger companies, these abandoned balances, combined with lost cards, mean millions of dollars in profits each year.

DirecTouch Point of Sale also allows you to set expiry dates for the cards issued. This helps create a sense of urgency to keep your customers coming back to redeem the cards.

Some restaurateurs use gift cards as an incentive to get people to try their restaurant. Instead of writing on the back of her business card, the owner puts small credits ($5 or so) on cards and then hands them out to specific people to try her restaurant. This is a great way to get people to come to your restaurant and is much more secure than writing on the back of a business card.

Bankruptcy and gift cards declared

What happens to gift cards when a company goes bankrupt? Can a business refuse to redeem outstanding gift cards during bankruptcy? Does it matter whether the company has filed for Chapter 11 or Chapter 7 bankruptcy ? Are there federal or state laws regarding bankruptcy and gift cards? All of these questions are the subject of this article.

Before answering the questions above, it is important to explain the difference between Chapter 11 bankruptcy and Chapter 7 bankruptcy. A company typically files for Chapter 11 bankruptcy protection when it wants to work with creditors to change the terms of its debt obligations and restructure its business to emerge from bankruptcy as a healthy company. A Chapter 7 bankruptcy involves the liquidation of assets to pay creditors. When a company files for Chapter 7 bankruptcy, the company goes out of business and usually closes all business.

However, a company planning to liquidate may also file for Chapter 11 bankruptcy protection, as in the case of KB Toys Inc, which filed for Chapter 11 bankruptcy protection in December 2008, although the company plans to liquidate its entire business and close all operations shut down. A company would typically file for Chapter 11 liquidation to gain more control when selling assets. Therefore, what is important for this article is whether the bankruptcy is intended to be reorganized or liquidated, and not whether it is a Chapter 7 or 11.

The decision to redeem gift certificates during bankruptcy, whether in a reorganization or liquidation, is the sole decision of the company, with the approval of the bankruptcy judge. After filing for bankruptcy in court, the company will file so-called “day-one motions,” seeking the judge’s approval on issues such as the company’s intended payment of workers, including whether it intends to redeem gift cards. Gift card redemption requests are usually approved by the judge, although the judge may deny them for any reason.

When a company chooses not to redeem gift cards during bankruptcy, it’s because it either chose not to seek approval from the judge or the application was denied by the judge. In general, it’s more the former than the latter. Given that some companies are going bankrupt with millions of dollars in outstanding gift card obligations, a company should expect backlash from consumers and pressure from politicians if it chooses not to redeem millions of gift cards during bankruptcy. This is what happened to Sharper Image when it initially decided not to redeem about $20 million worth of gift cards when it filed for bankruptcy in early 2008. After pressure from consumers and a string of attorney generals, the company caved in and allowed gift card holders to redeem their gift cards if they bought goods worth twice the value of their gift cards.

Companies applying for bankruptcy reorganization have several incentives to redeem gift cards during the reorganization. First, the last thing a business planning to stay in business wants to do is upset existing customers, and refusing to redeem gift cards is a surefire way to do that. Second, gift card holders typically spend more than the value of the gift card. So, redeeming gift cards during a tough time helps the business generate revenue. Third, it stops competitors from stealing customers. When The Sharper Image initially refused to which gift card has the highest rate in ghana redeem gift cards during its bankruptcy, competitor Brookstone saw an opportunity to attract more customers by offering Sharper Image gift cardholders attractive discounts if they gave their gift cards to Brookstone. Finally, redeeming gift cards during bankruptcy helps convey a “business-as-usual” image that a company planning to stay in business should hope to convey to its customers.

Businesses that file for bankruptcy have less incentive to redeem gift cards because they have no intention of staying in business. However, there are a number of reasons why it’s a good idea to redeem gift cards during liquidation. First, it’s the right thing. Consumers buy gift cards in the hope that they or their recipients will be able to redeem them within a reasonable time. Refusal to redeem gift cards breaks that trust and makes gift card holders victims of unfair commercial practices. Second, if you buy gift cards in honor during the sale, the retailer can quickly move inventory since gift card holders typically spend up to 20% more than the card value. This then becomes a win-win situation for both parties.