Gift Cards: What Retailers Know About Them That Most Buyers Don’t

Gift cards are a £7 billion market in the UK annually. They’re the most gifted product category in many markets and, according to retailer financial filings, one of their most profitable ones.

The profitability comes from a specific phenomenon: breakage. Not all gift cards are ever redeemed. An average of 10–15% of gift card value is never spent — either because cards are lost, forgotten, or face expiry dates the recipient doesn’t notice until it’s too late. This unredeemed value is revenue for the retailer — and in accounting terms, it’s recognised as profit the moment it becomes sufficiently unlikely the balance will be claimed.

This isn’t a criticism of gift cards as a product — there are many situations where they’re the right choice. But understanding the retail economics helps you make better decisions about when to give them, which ones to choose, and how to make sure the recipient actually gets the value.

Types of Gift Cards

Single-retailer closed-loop cards: Redeemable only at one brand — a Marks & Spencer gift card, an Amazon gift card, a Costa card. Maximum flexibility within that retailer, but if the recipient rarely shops there, the gift is less useful than cash.

Multi-retailer or mall cards: Accepted at a group of retailers, often within a shopping centre or retail park. More flexible than single-brand cards, less flexible than open-loop. Less common than they were before online shopping became dominant.

Open-loop cards (Visa/Mastercard gift cards): Function anywhere that card network is accepted. Effectively cash in card form, but with one meaningful difference: they often come with fees — sometimes a purchase fee, sometimes a monthly maintenance fee after a period of inactivity. The Visa Gift Card from a supermarket might cost you £3–£5 to buy, and may charge the recipient a maintenance fee if they don’t spend the balance quickly. These fees can meaningfully erode the value.

Digital / e-gift cards: Delivered via email or app notification rather than a physical card. The mechanics are identical but the delivery is immediate, which matters for last-minute gifts. There’s also no risk of the physical card being lost.

Experience vouchers: Gift certificates for restaurants, spas, events, or activities rather than retail products. These sit alongside gift cards in terms of use case but have different characteristics — they’re more personal and more perishable (the restaurant might close, the spa might get sold).

The Expiry and Fee Rules

In the UK, the Consumer Rights Act and subsequent regulations govern gift card terms. Key points:

There is no statutory prohibition on expiry dates, but the FCA has guidelines on what must be clearly disclosed. Some retailers have moved to longer or no expiry periods for reputational reasons; others maintain 12–24 month expiry terms.

Inactivity fees on open-loop cards are permitted but must be disclosed. A Visa gift card that starts charging £1.50/month after 12 months of inactivity is legal but can erode value significantly for a recipient who receives it and forgets about it.

Some retailers extend or honour expired cards if you call customer service and explain the situation. This is discretionary, not a legal right, but worth trying.

EU regulations are more protective: In many EU countries, gift card expiry terms are more tightly regulated than in the UK. If you’re purchasing a gift card for use in another jurisdiction, check the local rules.

The Practical Problem with Gift Cards as Gifts

Gift cards are the most popular non-perishable gifting option partly because they feel more personal than cash and less risky than guessing at a specific product. But several friction points consistently reduce their value to recipients:

The retailer mismatch: The giver chooses a retailer they personally like, not necessarily one the recipient uses regularly. An Amazon gift card is reasonably safe because Amazon’s range is enormous. A gift card for a specific clothing brand only has value if the recipient buys clothes there. The safest gift cards — in terms of recipient utility — are for retailers with the broadest product ranges.

Balance fragmentation: Multiple small gift cards with different balances at different retailers are genuinely awkward to spend. Combining them often isn’t possible, and spending one to zero requires either spending exactly the right amount or using a second payment method for the difference (which some retailers handle gracefully and others don’t).

The “too precious to spend” problem: Some recipients keep gift cards for a special purchase that never materialises. The card expires, or they forget about it, and the value is lost. This is the personal manifestation of breakage — and it affects thoughtful recipients more than impulsive ones.

Getting the Most Value as a Recipient

Register the card if the retailer offers it: Some retailers allow you to register gift cards to an account. This means if the card is lost or stolen, the balance can be recovered. Without registration, a lost gift card is typically a lost balance.

Set a reminder: If there’s any chance you won’t use the card immediately, set a calendar reminder for a date well before the expiry. Checking the balance regularly costs nothing.

Check the balance before shopping: Spending an amount close to the card’s balance and being declined for an underpaid balance is a common frustration. Checking the current balance on the retailer’s website before you go to checkout avoids this.

Use it for something you’d have bought anyway: Gift cards shouldn’t change your spending decisions (buying something you wouldn’t have bought just because you have the card). Use them against purchases you’d make regardless — the gift card substitutes for cash, not for justification to spend more.

Buying Gift Cards for Businesses

Corporate gifting programmes and employee rewards often use gift cards in volume. The business considerations differ:

Bulk purchasing discounts: Many retailers offer discounts on gift cards purchased in volume. The discount is effectively the retailer accepting lower average selling price for guaranteed revenue and the marketing value of distribution.

Tax treatment: Employee gift vouchers have specific HMRC treatment. Generally, non-cash gifts under £50 per employee per year qualify as trivial benefits and are not subject to income tax or National Insurance. Above this, they’re taxable benefits. Vouchers that can be converted to cash are always taxable. The details matter for payroll compliance.

Digital delivery and personalisation: E-gift card platforms allow businesses to personalise messages, track delivery, and often provide spending analytics. For recurring reward programmes (employee of the month, sales incentives), the administration is meaningfully easier than physical cards.

Compliance considerations: For financial services firms in particular, gifts and incentives to employees or third parties may have compliance implications beyond standard tax treatment. Financial promotions, anti-bribery frameworks, and FCA conduct rules all touch gift programmes in regulated environments.

The Honest Summary

Gift cards work best when they match what the recipient actually wants and would use, when they’re from retailers with broad enough product ranges that finding something to buy is easy, and when the recipient spends them relatively quickly.

They work least well as substitutes for thought in gifting — when the giver doesn’t know what to give and chooses a gift card as a default rather than considering whether cash would actually serve the recipient better.

Cash remains more flexible, universally accepted, and free of expiry dates. The cultural aversion to giving cash as a gift is a social convention, not a practical one. For adults who would benefit from cash, the honest assessment is that cash is often the better gift — even if a gift card feels more considered.