Expert On Gift Cards Replies To Oct. 25 Article On Gift Certificates
(Submitted by Mike Kelly, CEO of
The issue of
escheatment (surrendering the unclaimed value) is, as you noted, a
state regulated issue. Issuers of stored value cards are forced to
turn over the value on these cards in many cases (I believe over 35
states now). What doesn't get mentioned often, is that the issuer is
still carrying a balance sheet liability in their pre-paid sales
means is that the revenue collected from the sale of these unused
gift cards is not recognized because the issuer has not delivered
merchandise against it. The cash is there, but the ability to
recognize it is not. There becomes a real accounting issue with
significant consequences...another article in and of itself.
Issuers in the
past, have addressed this problem by utilizing expiration dates and
inactive card fees, to �reclaim� the liability or a portion of it.
In the case of an expiration date, the total amount of the liability
was satisfied; with inactive fees, it was recognized incrementally.
obviously isn't concerned with the issuer�s accounting issue - only
the fact that the card should keep its value indefinitely. Hence,
state legislators have come to the consumer�s defense. After all,
who is going to promote that big businesses should be allowed to
take your money and charge you for holding it?
some issuers have taken expensive and temporary measures to
safeguard their gift card revenue. As an example, the issuer could
spin off the gift card issuing portion of their business, and
re-establish it in a state that doesn�t escheat these cards. This is
really only a temporary solution.
As you pointed
out the list of states banning expiration dates and regulating the
unclaimed property is increasing. There are fewer places where
reorganizing the business this way can be done. Crazy!!
businesses (spas, restaurants, etc.) are less impacted from an
accounting perspective, because they tend to perform cash-based
accounting. They�ll recognize the revenue when it is received, not
when they deliver service/merchandise against it.
however, often regulated to honor lengthy time frames and buyback
commitments�adding administrative costs. Here, the consumer takes a
bigger risk, because the likelihood that a small retailer will be
out of business is higher than that of a national chain (just a fact
of gift cards, on sites such as SwapaGift.com, allow the consumer to
realize the full value of their card/certificate, and often times
liquidate at a discount that is higher than any state-mandated laws.
In a swap transaction, both parties typically trade cards that are
of equal value...and therefore are not forced to discount the scrip.
the parties are really trading the restrictions that these cards
represent (good at the issuer only). The opportunity to trade scrip
at parity or purchase scrip at a discount, are inviting to
value-seeking consumers...reasons why
has been able to establish a sound, liquid, secondary market.