Published On: May 19, 2017

Mother’s Day has come and gone, but if you still owe your mother a present and do not know what to get for her, why not consider buying a gift card from her favourite store? Whether it is a clothing store, beauty products, a delicious ice cream spot, date night at the movies or countless other possibilities, a gift card can surely satisfy mom’s every muse. To support the growing demand from retailers, POS companies are increasingly offering gift card programs to help generate added revenue and enhanced customer loyalty for their merchant partners. MONEXgroup fulfills these requirements as a one-stop shop, providing complete merchant processor solutions including state-of-the-art terminals, competitive rates, excellent customer service, and if they are interested in implementing gift card programs for their store locations – we are happy to assist!

Types of Gift Card Programs

Essentially, there are two types of gift cards: open loop cards and closed loop cards. Open loop cards look like a credit card and serve as prepaid cards that are accepted nearly everywhere; a perfect example would be a Visa® gift card. Closed loop cards are cards that are associated with one brand or one store. For example, Amazon, BestBuy, and The Keg Steakhouse utilize such gift cards which can even be found for sale at supermarkets and drugstores. MONEXgroup offers merchants with the ability to brand their own closed loop proprietary cards with their unique look. Furthermore, our terminals also accept the open loop variety.

How Do Closed Loop Gift Card Programs Work?

Closed loop gift card programs are a bit tricky to set-up, so it’s important to partner with a savvy POS provider that can navigate the merchant through the process. Usually, this type of gift card program will be set-up to work at several store locations as long as they share the same ownership and branding. Payment processing providers effectively act as the Dealer for the Client (otherwise known as the Merchant) when dealing with gift card technology intermediaries who provide the data for the individual cards and print the cards with the data encoded. Once the gift cards are printed, the software to support the gift cards needs to be downloaded on each individual terminal at each store. Most modern POS terminals are equipped so that any merchant can set-up a closed loop system and process the cards using their existing technology, but some systems require a different piece of technology (such as a separate scanner) in order to work (How do Gift Card Programs work).

How Businesses Profit from Gift Card Programs

Conventional wisdom might be that gift card programs are nice to have but do not help merchants attain a profit since they’re effectively selling an equal dollar in value to which they’ll receive in return, plus they have to invest in the card program. However, there are several ways in which a business that issues gift cards can still make the program a lucrative one.

Reasons Why Consumers Enjoy Gift Cards

There are mainly three reasons why a customer would be buying into a gift card program either for themselves or as a gift. First it’s because they know they will use the gift card for their personal consumption needs, second is they are gifting it to someone who likes to shop at the particular gift carded store, and thirdly they want to refer new customers to a store they like. The cash on the card provides an incentive for the recipient of the gift card to visit the store and test-drive a company’s product. If the buyer doesn’t like it, the business is only out the cost of producing the card, which is usually minimal compared to the value that is put into the card. This makes gift card programs low cost, low risk and good strategy for businesses to attract new customers, and a cheap alternative to traditional advertising.

Balances & Fees

With open loop cards, most issuers charge a small, up-front fee to cover the cost of production and processing fees. Since closed loop cards rely on their own internal systems, there are generally no third-party fees involved per transaction. The cost of producing the physical cards is made up for in the margins of the product purchased. Additionally, what typically happens is that after a while, a customer forgets that they still have money on the gift card so technically the merchant already makes a profit from their under-spend. Finally, if the balance is only partially redeemed after a few years from purchase, the business can charge a small fee against the remaining balance.

Customers Who Overspend the Balance

Once we start shopping, we might find items that are worth more than the value of the gift card ($25, $50, or $100), so most are willing to pay a bit more to ensure they receive the item they want. This means the business earns additional marginal revenue from those customers (typically around 20%).

How Do I Use My Open Loop Gift Card?

Open loop gift cards are basically treated like a credit card. For instance, if the card has a value of $30, every time you use it the total will be deducted from the balance. However, if you have a gift card from the gas stations, it will act as a preauthorized card that would be swiped for up to $100 or more, since the station operator would not know how much the final price would be so it’s safer for the gas station to charge more to cover the cost. Therefore, most people would prepay the card upfront at the store before purchasing gas so they know they have enough money on the card. Finally, most open loop cards are not accepted at any ATMs or online portal like PayPal because these services could be abused to launder money.

How Do Open Loop Gift Card Programs Work?

Open loop cards require a bank which holds the funds, a network that connects all the banks and the merchants who process the transactions, and lastly a seller that works with banks to offer the gift cards and manage customer needs. When an open loop card is purchased, the purchaser determines the denomination of the card. They are then charged that denomination, along with any fees the issuer assesses. The fund is held by the bank, which will distribute it via the processor to the merchants. Once the gift card is approved, it is produced and mailed to the purchaser. The purchaser can either call or go online to activate the card. Once it’s activated they can start using the card. Every time the purchaser uses the gift card, the amount they purchased will be deducted from the card.

MONEXgroup and Gift Card Programs

MONEXgroup boasts a wide variety of POS machines for Canadian retailers to choose from. Our Countertop terminal such as the Clover Mini which has the Tap & Go feature is versatile and an excellent selection for a brick-and-mortar store; while our Clover Flex which operates on WiFi and LTE networks is ideal for businesses looking to expand or just start out doing business on the road. We ensure that all of our terminals (whether countertop or wireless) are equipped to support gift card programs and solutions. For example, if a customer utilizes a gift card that’s associated with pizza delivery or a clothing store, these merchants can be confident that transactions will go through smoothly using MONEXgroup’s terminals. Moreover, we are thrilled to announce the partnership with a trustworthy and renowned gift card program company to help process and initiate gift cards for our merchants. The key reasons why we encourage our clients to develop gift card programs are:

1.    Help our merchants accelerate their ability to acquire new customers in a cost effective way while adding another revenue stream

2.    Improve their ability to retain their customers and encourage them to refer new customers to their business

3.    Ease the way that merchant does their business while driving added sales volume so ultimately everyone wins

When partnering with the number one Canadian merchant services in Canada; MONEXgroup payment processing will increase your efficiency and quality of service and lower the related costs. Request a Cost Comparison Analysis today.

Author: Lindsey Lu, Marketing Communication Specialist, MONEXgroup
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