Why do gift cards remain profitable even after expiration dates?
Gift cards generate billions in pure profit for retailers annually. The secret lies in consumer behavior patterns that favor merchants over purchasers. Unredeemed balances create revenue without corresponding inventory costs or service delivery obligations. Federal regulations now limit some exploitative practices, but loopholes remain that retailers exploit aggressively. Breakage rates, the industry term for unredeemed card percentages, hover around ten to fifteen percent across most retail categories. amexxgiftcards.com participate in this ecosystem where profitability extends far beyond initial purchase transactions through multiple revenue streams that consumers rarely understand or anticipate when buying cards.
Breakage revenue streams
Unredeemed cards represent pure profit for retailers. Accounting rules allow companies to recognize breakage revenue after specific time periods pass without redemption activity. Most retailers wait twenty-four to thirty-six months before claiming unredeemed balances as income. This conservative approach satisfies auditors while eventually converting liabilities into profits. The numbers scale dramatically across large retail operations. A chain processing ten million in annual gift card sales keeps one million through breakage alone. This revenue requires no inventory purchase, no employee labour, and no facility costs. The profit margin reaches one hundred percent on unredeemed amounts.
Partial redemption
Consumers rarely spend exact card amounts. A fifty card applied to a forty-seven purchase leaves three unredeemed. These small balances accumulate across millions of transactions. Most people abandon cards with balances under five because spending them requires additional purchases. Retailers count on this behaviour. Studies show that sixty-five per cent of cards retain balances after final use. The average abandoned balance sits at four seventy-three per card. Multiply this across transaction volumes, and the profits become substantial. Retailers design denomination options to maximize partial redemption likelihood. Odd amounts like twenty-five or seventy-five rarely match purchase totals exactly.
Expiration and fee structures
Federal law prohibits expiration dates shorter than five years from purchase or last reload. Many states ban expiration entirely on cards above a certain value. Retailers adapted by implementing dormancy fees instead. These monthly charges activate after twelve months of inactivity in most cases. Monthly fees vary by card type and issuer:
- Visa prepaid cards charge two ninety-five to five ninety-nine monthly
- Restaurant gift cards typically assess two fifty after eighteen months
- Retail store cards rarely charge dormancy fees due to state restrictions
- Promotional cards often include aggressive fee schedules hidden in terms
- Hotel and airline cards may charge three to seven months after an inactivity period
Fees drain remaining balances over time. A card with twenty remaining loses total value within four to seven months of dormancy fee activation. Consumers forget about cards and rediscover them years later with zero balances. The issuer kept every cent through systematic fee extraction.
Lost card profits
Physical cards get lost at alarming rates. Industry data shows that twenty-three per cent of purchased cards never get redeemed due to loss or misplacement. These lost cards create guaranteed profit for issuers. The original purchaser paid full value. The recipient never claimed the funds. The retailer keeps everything. Virtual cards reduce loss rates, but still see abandonment. Email accounts get closed or forgotten. Recipients ignore messages or mark them as spam accidentally. The virtual card sits unredeemed while the issuer recognizes breakage revenue after waiting periods expire. Either format generates profits from consumer forgetfulness or carelessness.
Gift card profitability extends decades beyond initial purchase dates through systematic revenue extraction. Retailers designed these systems intentionally to maximize financial gains while providing minimal actual value delivery relative to collected funds.
