The gift card industry is all abuzz about the final set of gift cards regulations that went into effect over this past weekend.  Most of the regulations deal with use-anywhere “open loop” gift cards, such as Visa, Mastercard and American Express gift cards.  As I’ve written here before, Plastic Jungle generally does not transact in those cards so the regulations don’t affect us much – or you when you do business with us.

But some of the regulations do change the rules that apply to retail and merchant branded “closed loop” gift cards, such as the gift cards we buy and sell, for instance Target, Home Depot and Best Buy gift cards.  The new regulations limit non-use fees, allowing them only if the card has been inactive for a year or more, and also ensure that a gift card may not expire prior to 5 years after it was sold.  Gift card merchants will also be required to provide even more disclosure to you as a consumer, so more tiny print to wade through (if you should so choose)!

What’s it mean for you?  Not much.  Most retailers and merchants (and virtually all national retailers and merchants) eliminated non-use fees some time ago, and most stores also don’t ever expire a card.  Indeed the Retail Gift Card Association requires its members, which includes most major gift card issuers, not to charge “dormancy or other administrative fees on any closed loop gift cards and to eliminate any expiration dates or conditions on such gift cards.“  Pretty strong stuff.

The truth is that these merchants want to make sure that their gift card programs are as friendly to you as possible.  Some cards, mostly local and smaller merchant cards who may not even be aware that their cards have these fees, may charge fees, and it’s always a good idea to check the terms of any gift card – but these regulations will ensure that you have the time to do so before you are penalized.

It also means that we want your gift cards even more.  From our perspective, limiting non-use fees and expiration policies means the cards will have longer lives, and so we can buy and sell more of them.  It’s nice that the government understands that gift cards are a really valuable asset to you the consumer.  We and our friends in Washington have your interests at heart – we both want to make sure your gift cards are as valuable to you as possible.

We are occasionally asked why we don’t buy and sell “use anywhere” Visa, Mastercard and American Express gift cards.  These cards – referred to in the industry jargon as “open loop” cards – may be redeemed at any merchant that accepts Visa, Mastercard or American Express, as the case may be, as a payment option.  These are different from the merchant issued “closed loop” cards we buy and sell on a regular basis … closed loop cards typically may only be redeemed at the merchant that has issued them (for instance, at Target).

There are a few answers.

Fees & Expiration Dates

First, many of these cards have ongoing fees associated with them that can reduce the redemption value over time.  While the open loop industry has done a good job at making these fees easier to sort through, we don’t want any of our customers to have a disappointing experience if these fees reduce the value of the card with time.  Since there are a wide variety of these cards in market, many with very different fee schedules, we have chosen not to add to the confusion.  Plus, open open loop cards tend to have expiration dates, and we want to make sure that the card does not expire before you could put it to good use.

Best Deals on the Brands You Love

Second, most of our customers tell us that they prefer buying a card issued by a specific retailer.  Why?  Simple really – because our customers really want to shop at that specific retailer, and are looking to Plastic Jungle to make that shopping experience as valuable as possible.  That’s easier for us to do with closed loop cards than with open loop.

Anti-Fraud

A third reason is perhaps not so obvious, and that has to do with Plastic Jungle being a good corporate citizen.  Early in our life, we did occasionally buy and sell open loop cards.  But we quickly came to the realization that there really wasn’t any good reason for someone to sell us a “good as money” card at a discount.  And if there wasn’t a good reason we needed to ask ourselves why someone would do so.  There are several benign explanations, but one thing we did want to be careful about was that Plastic Jungle was not to be misused as a channel by which money could be “laundered”.  The financial services industry is very cautious and attentive about money laundering issues, and works closely with governmental regulators to ensure that the payment systems are not misused to achieve nefarious ends.  One way Plastic Jungle can play its own small role is by not purchasing open loops cards at a discount.  This closes off any potential for a criminal or terrorist, or someone unwittingly working for them, to purchase open loop cards for cash, and then sell them to us for cash or check (at which point the money is considered “laundered”, meaning difficult to trace to its source).   It’s a small role, but one we are happy to serve.

All that said, we are considering carrying open loop cards for sale that are not acquired from the open market, but instead are acquired directly from card issuers.  These cards are not open to money laundering since they were not purchased from an individual.  This also means that we can be more explicit about what types of fees may be associated with these cards and can even help you comparison shop to find the best deal.  If you think this is worth us doing, please let us know by commenting below, and we will consider it.

In the meantime, we will continue to do our part in making sure that our business serves your interests above all others.

Thanks to our Tech team, today marked another exciting milestone for Plastic Jungle. We have electronically integrated with First Data’s gift card processing platform.  This partnership will enable our users to buy and sell gift cards electronically, making it even faster and easier to get more value from gift cards in a whole new way.

This integration will permit Plastic Jungle to partner with First Data’s gift card issuers (with their permission of course) so that you can sell us a gift card you don’t plan to use and receive your funds without having to mail in the card.  Plus we will be able to sell the value remaining on that gift card to one of you savvy shoppers out there, and instantly issue you a gift card account number to redeem its value at participating retailers.

The First Data integration furthers our mission to unlock the $30 billion unredeemed gift card economy for your benefit – and for the benefit of the retailers who prefer to convert these dormant gift card balances into revenue and profit much more rapidly, while reducing the fraud risk inherent in other online exchanges.  And our retail partners love us gift cardholders because we tend to spend more than 70% over the value on the card.  (You know it’s true!)

We’re all about helping you get more from gift cards.  Through our relationship with First Data, we will help you free the value of gift cards from the plastic they are bound to, and help our retailer friends to engage with their best customers in new, more powerful ways.

Read what First Data had to say about this achievement in First Data’s Perspective: Gift Card Exchanges.

We’re often asked why retailers would want to join the Plastic Jungle marketplace, allowing their gift cards to be traded electronically.  Indeed, many ask us why a retailer wouldn’t prefer that the card simply expire – going off into the ether, allowing the retailer to simply keep the money that otherwise would be spent in the store.  (In the gift card industry, they refer to this as “breakage.”)

There are many reasons, but let’s address the perception that retailers would rather their gift card just went unused.

They don’t.

First, in many states (and more importantly in an increasingly large number of states), unused gift card balances are not kept by the retailers.  They are paid to the state government as lost property.  This is called “escheatment.”  So no benefit here for the retailer.

Second, it used to be that retailers could earn interest on gift cards balances that did not go used.  That meant something when interest rates were 10%.  Not so much now.

So, the notion that all retailers want breakage is just that – a notion.

But more important is the value that the retailer achieves when a gift card is used.

At its heart the Plastic Jungle marketplace is all about getting gift cards out of the hands of people that won’t use them (often simply because the store either is not located closely enough or doesn’t carry the types of products they wish to purchase, no reflection on the retailer), and into the hands of motivated shoppers (the retailer’s best customers).  That in and of itself is incredible valuable to the retailers.  Why?

• Because purchasers will redeem the cards in store usually within a couple weeks.  And the retailer will earn both revenue and profit when they do – remembering that the retailer has booked the card balance as a liability.  That’s real time revenue and profit, not breakage at some future point that the retailer’s lawyers and accountants may or may not allow them to book.  Since most cards that come on to Plastic Jungle are very “young” that profit has time to earn a return for the retailer, much more so than dead balance.

• Typically when a consumer redeems a gift card in store, they spend more than the value of the card.  A lot more.  The industry average is around 70%, but for certain retailers it’s as high as 300%!  So the gift card is just a means to an end (in this case, a much higher purchase).  And, the types of goods that gift card users purchase tend to be higher margin goods – because the card to them is a way to buy something just a bit nicer than they were planning to.  And more margin means more profit.

• One more important thing retailers love – when someone purchases a card from Plastic Jungle, we know who they are.  If the buyer has given us permission, we can message him or her about all the great ways that they can spend their gift card.  This let’s the retailer promote the types of goods and services it wants its consumers to purchase.  Everyone wins.

So the retailers really do benefit whenever a gift card comes through the Plastic Jungle marketplace.  Now let’s multiply that benefit by $30 billion.  That’s a lot of revenue and profit that Plastic Jungle can unlock and speed to retailers doors.  Enough to turn around the current economic crisis?  Maybe not – but it’s a great start, and retailers want to make sure that they are part of it.

Plastic Jungle enjoys great relations with its retailer partners.  We believe our success is their success, and that’s how we are building our business.  We truly are bringing their gift cards home.