Can You Use Gift Cards to Buy Other Gift Cards?

It is a common inquiry whether one gift card can be used to purchase another. The answer involves understanding different types of gift cards and retailer policies.

General Retailer Policies

Most major retailers do not permit using their store-branded gift cards to acquire other gift cards. Companies like Walmart, Target, Amazon, and Starbucks prohibit such transactions. Retailers embed this restriction directly into their point-of-sale systems, which automatically decline attempts to buy a gift card with another. This limitation is also stated within the terms and conditions of the gift cards, including those from Walgreens, Delta, and eBay.

Reasons Behind Policy Limitations

Retailers implement policies against using gift cards to buy other gift cards for several reasons, primarily fraud prevention and accounting integrity. Gift cards are susceptible to fraudulent activities, including money laundering schemes. Their ease of monetization and relative anonymity make them attractive to criminals. Stolen credit card numbers can be used to purchase gift cards, which are then used to buy other gift cards, obscuring the money trail and making funds harder to trace. Law enforcement agencies, such as Homeland Security Investigations (HSI), track organized crime groups exploiting gift cards for money laundering.

Another factor is the complexity introduced in financial accounting and revenue recognition. Under the Accounting Standards Codification (ASC) 606, the sale of a gift card is initially recorded as a liability, specifically deferred revenue, rather than immediate income. Revenue is only recognized when the gift card is redeemed for goods or services. Allowing the purchase of one gift card with another could complicate this accounting treatment, making it difficult to accurately track liabilities and recognize revenue. Retailers also aim to prevent the “cascading” of gift card balances and encourage spending within their own brand ecosystem.

Understanding Different Gift Card Types

The ability to purchase one gift card with another depends on the specific type of gift card. Closed-loop gift cards are issued by a specific retailer or brand, usable only at that store or chain. Examples include gift cards for department stores, coffee shops, or online marketplaces. These cards are subject to strict policies that prevent them from being used to buy other gift cards.

In contrast, open-loop gift cards are branded by major payment networks like Visa, Mastercard, or American Express. These cards function much like a debit or credit card and can be used anywhere the respective network is accepted. While open-loop cards offer greater flexibility, their usability for purchasing other gift cards is not universally guaranteed. Some retailers may still decline such transactions due to internal policies or point-of-sale system limitations. Open-loop cards incur activation fees, which are not associated with closed-loop gift cards.

Navigating Purchase Attempts

When considering using a gift card to buy another, first review the terms and conditions of the gift card you possess. These terms detail any restrictions on purchasing other gift cards or financial products. Inquire directly with the specific retailer about their policy before attempting such a transaction.

Even if the gift card is an open-loop card, the retailer’s point-of-sale system or internal policies may still prevent the sale. This means the merchant’s operational rules can override the card’s capability. If there is any uncertainty, contacting the customer service department of the retailer or the gift card issuer can provide clarity.