More and more consumers in the USA are reported to be using credit cards for their everyday needs, as well as for large purchases, like domestic appliances, mobile phones and even cars. Yet, a considerable part of the financially active public are still more inclined to debit cards, prepaid credit cards and store gift cards as a convenient tool to pay for expenses.
Gift cards have been a special convenience as they function like a standard credit card but eliminate the risk of accumulating debt. They are in fact like a debit card but they give you the privilege of becoming an established customer of your favorite retailer and allow you to shop on special terms.
Today, lots of gift cards are put at risk of being suspended, thus depriving customers of their money. What's happened and how will it affect customers, as well as the retailers that issued the gift cards?
Let's first specify what type gift card we are discussing. There are two basic types functioning on the market today - those gift cards that are available with banks and carry Visa or MasterCard logo and those that are issued by retailers.
We are focusing on nonbank gift cards as very soon they could lose their value and become just worthless pieces of plastic. The major reason for their depreciation is going out of business or filing for bankruptcy among retailers. There is already a large group of cardholders suffering from the bankrupt retailer the Sharper Image that has declared suspending the acceptance of its gift plastics.
The customers' frustration is easy to understand. You put, say $100 on the card, add to it the set up fee and others, and now you just cannot use it! The money has left your wallet and rested on the retailer's account.
However, though it is the gift card holders who suffer most, the suspending of card acceptance seems to be a double-edged sword. The retailer is not only undergoing bankruptcy but is risking losing its loyal customers who are very likely to turn to another, prosperous retailer.
The suspension approach has given consumer-advocacy groups another moral right to become more aggressive against some of the rules applicable to gift cards.
As it is, nonbank cards do not comply with the jurisdiction of the federal banking laws, so the retailers issuing them have their own vision how to account for the revenues, disclosures and regulations associated with them. Hence, there come all those numerous fees, expiration dates and other restrictions that make the use of a gift card less profitable for the customer.
Now, as many gift cards threaten to lose value, more consumers think of applying for a regular credit card because it usually appears to be of greater profit. Why? It is simple. You only need to make on time payments and stick to the credit line and you are sure to be gaining profit, let alone enjoying the purchasing power which is a regular feature with a credit card.
So, are the developments in the retailers' cards business making you question your further loyalty? According to the recent poll, they are. Consumers are afraid that retailers may be sold through chapter 11 of Bankruptcy and their gift cards will lose value for ever. So, they have to variant to react and protect themselves - go to another retailer or go to a bank for its own gift card or a credit card which is a more lucrative deal, considering some of its terms, rates and fees.