Can You Buy Gift Cards With Gift Cards?
Uncover the reasons behind common gift card transaction policies and understand the financial mechanisms that govern their use.
Gift cards are a ubiquitous part of modern commerce, offering a convenient way to give and receive value. A common question for consumers is whether it’s possible to purchase one gift card using another.
Retailer Policies on Gift Card Purchases
Most retailers generally do not permit the purchase of a gift card using another. This policy is primarily implemented to mitigate various financial risks and prevent illicit activities. The restriction applies broadly to both physical and digital gift cards issued by specific stores or brands.
A significant reason for this policy is fraud prevention. Allowing gift cards to purchase other gift cards could create a loophole for money laundering and other fraudulent schemes. Criminals might use illegally obtained funds or stolen credit cards to buy gift cards, then convert those into new, untraceable gift cards, making it difficult to trace the origin of the funds.
Beyond fraud, these policies simplify financial controls and accounting. Gift cards are treated as a liability on a retailer’s balance sheet until redeemed for goods or services. Prohibiting such transactions helps prevent the creation of an unregulated secondary market where gift cards could be exchanged or converted into cash equivalents outside of the retailer’s control.
Specific Situations and Store Credit
While direct gift card-to-gift card purchases are generally disallowed, certain situations might appear similar but function differently. Distinguishing these scenarios is important to understand the specific rules involved.
Store credit, also known as merchandise credit, differs from a standard gift card. It is typically issued by a retailer for returns made without a receipt or as a customer service gesture. Unlike gift cards, which are purchased, store credit is a form of internal currency tied to a specific store, often with more restrictive terms regarding expiration or usage. While rare, if a store allows store credit to purchase a gift card, it is an exception based on their internal policy rather than a general rule for gift cards.
Promotional offers or loyalty programs may also sometimes allow customers to redeem points or rewards for gift cards. This process, however, involves converting loyalty points into a gift card, not using one gift card to acquire another. This distinction is important as the value originates from a loyalty system rather than an existing gift card balance.
General-purpose prepaid debit cards, such as those branded with Visa, MasterCard, or American Express logos, operate differently from retailer-specific gift cards. These cards function more like traditional debit cards and can often be used to purchase other gift cards, including retailer-specific ones. This is because they are issued by financial institutions and are accepted wherever their respective payment network is honored, providing broader utility than closed-loop store gift cards.
The Nature of Gift Card Transactions
Understanding the fundamental nature of gift cards as financial instruments clarifies why retailers maintain specific policies regarding their use. Gift cards are not considered legal tender or currency. Instead, they represent a pre-purchased credit for future goods or services at a specific merchant or a defined network of merchants.
The utility of most gift cards is typically limited to the issuing merchant or a particular network, unlike cash or traditional credit and debit cards, which have broad acceptance. This limitation is inherent to their design as a commitment from the retailer to provide value in the future.
For retailers, gift cards represent a financial liability until they are fully redeemed. When a gift card is sold, the cash is received upfront, but the corresponding revenue is not recognized until the card is used for a purchase. This deferred revenue accounting treatment means the retailer has an obligation to the cardholder. Allowing gift cards to be used to purchase other gift cards could create complex layers of liabilities and make tracking potential revenue recognition from unredeemed balances (breakage) more challenging.
Gift card transactions are processed differently from cash or credit/debit card payments. The unique processing mechanisms contribute to the restrictions on their use for purchasing other gift cards. The financial and regulatory framework surrounding gift cards is designed to manage risk, ensure proper accounting, and prevent their misuse for purposes beyond their intended function of facilitating future purchases of goods and services.