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Find out the average gift card redemption rate, key benchmarks, and what influences how often gift cards are used. Get practical tips for shoppers and retailers.
Ever found a forgotten gift card in your wallet? It feels like free money. But for businesses, that unused plastic tells a bigger story. The gift card redemption rate is a key metric that reveals how many cards are actually used. Considering the staggering percentage of gift cards that go unused, this isn't just pocket change. We'll explore the latest gift card statistics, the factors influencing redemption, and share simple strategies for both shoppers and businesses to make the most of every card.
Gift card redemption percentage is simply the proportion of gift cards actually used by customers. Think of it as a performance metric showing how many gift cards turn into sales. Recent data from GrabOn shows that over 56% of gift cards are redeemed within the first six months. This tells us that most people do use their gift cards, making it a key area to understand for both businesses and consumers.
Gift card redemption is the process of a customer using their gift card to buy something. It's the moment the stored value on the card transforms into a purchase. This process is pretty straightforward.
Figuring out your gift card redemption rate is simpler than it sounds, and it gives you a clear picture of how well your program is performing. The formula is straightforward: divide the number of gift cards redeemed by the total number issued, then multiply by 100. For example, if 1,000 cards are used out of 5,000 that were issued, your redemption rate is 20%. This number is more than just a statistic; it’s a direct measure of customer engagement. Most loyalty programs see a redemption rate between 20% and 50%, which serves as a helpful benchmark. For businesses with high transaction volumes, consistently tracking this metric is crucial for accurate financial reporting and understanding your revenue recognition obligations.
Redemption rates are a critical piece of the puzzle for retailers. They offer valuable insights into how effective gift card programs and marketing efforts are. High redemption rates mean customers are engaged and using their gift cards, which is good news for sales. However, a significant chunk of money from unused gift cards becomes what's called "breakage"—essentially profit for retailers. CBS News highlighted the financial implications of this for both businesses and consumers. Some states even require unredeemed gift card balances to be returned to consumers through unclaimed property programs, so keeping an eye on those redemption rates and working to improve them is essential. It's a balancing act between maximizing profit from breakage and ensuring compliance with regulations. For consumers, understanding redemption rates can help you make informed decisions about purchasing and using gift cards effectively. More on that later!
The gift card industry is massive, and it's not slowing down. The global market was valued at an incredible $1.24 trillion and is projected to nearly double by 2030. This growth highlights just how integral gift cards have become to modern retail. However, a fascinating aspect of this market is the amount of money left on the table. In the United States alone, consumers are holding onto an estimated $23 billion in unused gift cards. This unspent value, known as breakage, represents a significant financial consideration for businesses. Properly accounting for this revenue is not just good practice; it's a complex task that requires precise tracking and compliance with accounting standards.
Gift cards do more than just cover a purchase; they actively encourage customers to spend more. It’s a psychological win for retailers. When a customer uses a gift card, they often feel like they're spending "free money," which makes them more willing to open their wallets for additional items. Research shows that about 75% of people using a gift card end up spending more than its value, adding an average of $59 to their purchase. This "upspend" is a powerful driver of incremental revenue. It transforms a simple gift card redemption into a larger, more profitable sale, demonstrating that the value of a gift card program extends far beyond the initial amount loaded onto the card.
Beyond driving sales from existing customers, gift cards are a fantastic tool for bringing new faces through the door. For businesses, they represent cash received upfront, and if a card goes unused, that breakage becomes pure profit. But the real magic happens when they are redeemed. Data shows that 34% of people use gift cards to visit stores they wouldn't typically frequent, effectively turning a gift into a customer acquisition channel. Furthermore, these new visitors are often high-quality customers, as gift card users are 2.5 times more likely to pay full price for items. Tracking the journey of these new customers requires connecting sales data with marketing efforts, a process made simpler with the right data integrations.
Understanding gift card redemption rates is crucial for both consumers and businesses. For consumers, it helps maximize the value of gifts. For businesses, it offers insights into sales trends, customer behavior, and revenue projections. Let's explore some industry benchmarks and the factors influencing these rates.
Gift card redemption rates offer a glimpse into consumer spending habits. Studies show that a significant portion of gift cards are redeemed relatively quickly. GrabOn's research reveals that over 56% of gift cards are redeemed within the first six months. This highlights a generally high rate of utilization. However, this also means a substantial percentage remains unredeemed. A 2023 analysis by NFS Hospitality showed a 57% redemption rate within six months. It's worth noting this figure hasn't fully returned to pre-pandemic levels. CBS News reported a slightly higher redemption rate, with 70% of gift cards used within the same timeframe. These varying figures underscore the dynamic nature of the gift card market.
While many gift cards are used quickly, what about the ones that linger in wallets and drawers? The data shows a clear drop-off over time. After a year, about 80% of gift cards have been redeemed, but that leaves a significant portion unused. In fact, between 10% and 19% of gift card balances often remain untouched, with a surprising 6% that never get used at all. For businesses, this "breakage" represents revenue, but it also comes with complex accounting rules. For consumers, it's a simple reminder: check your balances and use those cards before they're forgotten. Setting a calendar reminder or keeping them in a visible spot can make all the difference.
It's also important to recognize that redemption rates aren't uniform across the board; they can vary quite a bit by industry. For instance, loyalty programs often see redemption rates between 20% and 50%. E-commerce businesses typically land on the lower end of that spectrum, around 20% to 30%, likely due to the sheer volume of online options available. In contrast, the travel and hospitality sectors can see rates as high as 70%, as these gift cards are often tied to larger, more memorable purchases like vacations or special dinners. Understanding these industry-specific trends helps businesses set realistic expectations and tailor their strategies for encouraging gift card use.
Redemption rates aren't uniform. They fluctuate based on several factors, including card type and brand. Research indicates that redemption rates saw a temporary increase in the initial weeks following purchase in 2020 compared to previous years. The rise of e-gift cards adds another layer of complexity. Studies show that e-gift cards consistently represent 15–17% of gift card sales, but their redemption patterns may differ from physical cards. Industry also plays a significant role, with the retail and restaurant sectors often showing distinct consumer behaviors. Understanding these nuances is key to developing effective strategies for both issuing and using gift cards.
Several factors play a role in whether a gift card gets used. Understanding these influences can help both consumers and businesses make the most of them.
Gift cards from well-loved brands tend to see higher redemption rates. Think about it: you're more likely to use a gift card from a store you already frequent or a brand you admire. This ties into brand accessibility, too. A convenient location or a robust online presence makes using gift cards easier. If redeeming a gift card is a hassle, it's more likely to be forgotten. Capital One Shopping's research shows consumers are simply more inclined to use cards from retailers they already enjoy.
The card's value can influence how quickly someone uses it. Higher-value gift cards are often redeemed faster, according to GiftCardGranny's 2023 study. It's like having extra spending power, which can encourage a purchase. Expiration policies also matter. A clear expiration date can motivate people to use their gift cards. This sense of urgency can significantly drive redemptions.
Digital gift cards are increasingly popular because they're easy to store and access on your phone. This convenience often leads to higher redemption rates compared to physical cards, which can be easily misplaced. Gift Rabbit's statistics highlight this growing preference for digital formats, noting a trend toward increased usage.
The type of gift card also plays a significant role in redemption. Closed-loop cards are retailer-specific—think of a gift card for your favorite coffee shop. They keep customers coming back to a particular brand, which is great for building loyalty. On the other hand, open-loop cards, like those backed by Visa or Mastercard, can be used almost anywhere. While they offer more flexibility for the recipient, they don't tie the customer to a single business. For merchants, closed-loop cards are often more cost-effective due to lower processing fees. The choice between them isn't just about customer convenience; it directly impacts revenue streams and financial tracking. Managing the deferred revenue from thousands of closed-loop gift cards requires a precise system to ensure compliance and accurate reporting, especially for high-volume businesses.
Understanding how different demographics interact with gift cards offers valuable insights for both consumers and businesses. Let's explore how age, income, and gender influence gift card usage and redemption.
Millennials often hold the highest amount of unredeemed gift card value—averaging $226 per person, according to this gift card statistics report. This suggests younger generations might be more prone to accumulating unused balances, perhaps due to changing spending habits or more gift-giving occasions. This trend highlights the importance of understanding generational differences when marketing and distributing gift cards.
Different generations interact with gift cards in unique ways, creating patterns that are important for businesses to understand. For instance, younger generations, particularly Millennials, and higher-income individuals tend to have more unused gift cards. This isn't just a hunch; data shows that women are more likely to purchase gift cards than men. These demographic details provide a clearer picture of who is buying gift cards versus who might need a reminder to use them. For any business, tracking these trends is key to refining marketing strategies and managing gift card revenue effectively. Knowing your audience helps you tailor promotions that encourage redemption and build stronger customer relationships.
Higher-income individuals are also more likely to have unredeemed gift cards. Research from GrabOn indicates 62% of higher earners reported having unused gift cards. This might seem counterintuitive, but it could be attributed to a lower perceived urgency to redeem smaller amounts or simply having more disposable income.
Women tend to purchase gift cards more frequently than men, with 60% reporting regular purchases, according to this gift card trends study. This difference in purchasing behavior could stem from various factors, including gift-giving habits and shopping preferences. Understanding these gender-specific trends can help businesses tailor their gift card marketing strategies.
It might sound a bit strange, but buying gift cards for yourself is a growing trend. This isn't just about treating yourself; it's often a smart financial move. Many people purchase gift cards, especially digital ones, to manage their money and stick to a budget for specific categories like coffee, groceries, or entertainment. The convenience factor is huge, too. With a massive global digital gift card market, it's easier than ever to load funds onto a card for quick, contactless payments. This behavior highlights the shift in how consumers view gift cards—not just as presents for others, but as practical tools for personal financial management.
Let’s talk about those gift cards we all have tucked away—the ones we got for our birthday, the holidays, or maybe as a "just because" present. Sometimes, they get forgotten, lost in the shuffle of everyday life. What happens to those unused gift cards? They contribute to a phenomenon called breakage.
Breakage refers to the portion of gift card value that goes unredeemed. Essentially, it's money consumers have spent but haven't actually used, which becomes profit for retailers. While it might seem insignificant on an individual level, it adds up—billions of dollars annually. This breakage revenue has a real impact on both consumers and businesses.
The scale of gift card breakage is staggering. Americans are currently sitting on about $21 billion in unredeemed gift cards. This isn't a recent trend, either; between 2005 and 2015, a massive $45.7 billion in gift card money went unspent. For major retailers, this translates into significant revenue. In one year alone, Starbucks reported $105 million from breakage, while Best Buy and Home Depot saw tens of millions. It’s easy to see how it adds up when you consider that nearly 29% of us have let a gift card expire and 25% have lost one. For businesses, accurately accounting for this breakage revenue is essential for compliance and clear financial reporting, making it a critical part of managing a gift card program effectively.
The financial implications of unused gift cards are substantial. Americans currently hold around $21 billion in unredeemed gift cards. Millennials and Gen Z hold the largest share, suggesting a shift in how younger generations use them. Beyond the unspent value, many consumers experience financial loss due to gift card issues like expiration dates, lost cards, or store closures. Gift card scams also play a role, costing consumers over $228 million in 2022, according to this CBS News report. While the overall gift card redemption rate is around 57%, it's still lower than before the pandemic. This creates a complex situation where both consumers and retailers navigate the financial impact of gift card usage.
It's wild to think about, but Americans are sitting on about $21 billion in unused gift cards. That's a huge amount of money just waiting to be spent. In the retail world, this unredeemed value is called "breakage," and it eventually turns into profit for the company. While it might not seem like a big deal for one forgotten card, it adds up to billions every year. For businesses, managing this isn't straightforward. That unspent value sits on their books as a liability, and knowing when to recognize it as revenue is a key part of accurate financial reporting. It highlights why tracking every dollar, even from gift cards, is so important for a clear financial picture.
When the holiday season rolls around, gift cards become a go-to solution. It makes sense—they're easy to buy and let people choose what they really want. In fact, about 40% of all holiday spending goes toward gift cards. While this is great for shoppers, it creates a massive influx of transactions for businesses to track. For high-volume retailers, this holiday rush means carefully managing thousands of gift card sales and redemptions. Figuring out which cards are used versus which become breakage is a major accounting challenge that directly impacts revenue reporting and overall financial health.
Let's explore some of the most common reasons gift cards go unused. Understanding these roadblocks can help both consumers and retailers find ways to improve redemption rates.
It's easier than you think to lose track of a gift card. They're small, often tucked away in wallets or drawers, and can easily be forgotten. Between busy schedules and cluttered spaces, gift cards sometimes simply slip our minds. A recent survey found that nearly 29% of Americans have held onto a gift card so long that it expired, and 25% have lost at least one.
Another common reason for unredeemed gift cards is a simple lack of urgency. There's no immediate need to use them, so they often get put aside for "later." This procrastination can lead to forgotten cards and missed opportunities to use them. This "breakage" – the value of unredeemed gift cards – can be significant profit for retailers. Some states require this unclaimed money to be returned to consumers through specific programs.
Sometimes, a gift card might be for a store or brand that isn't easily accessible or doesn't offer anything the recipient truly wants. This limited use can make a gift card feel more like a chore than a treat. Perhaps the store is too far away, or the merchandise doesn't align with the recipient's tastes. This can lead to the card being put aside and ultimately forgotten. Ironically, gift cards can be valuable tools for retailers to understand customer preferences and manage inventory, but only when they're actually redeemed.
Beyond the issue of simply forgetting to use a gift card, there's a more troubling problem: fraud. The very features that make gift cards so convenient—their cash-like nature and relative anonymity—also make them an attractive target for scammers. This isn't just a headache for consumers who lose their money; it's a significant challenge for businesses as well. When fraud occurs, it can erode customer trust and create complex accounting issues. Tracking fraudulent transactions, managing chargebacks, and ensuring accurate revenue recognition become much more difficult, muddying the financial waters for retailers who need clear data to make sound decisions.
The rise of digital gift cards has only amplified these risks. While e-gift cards offer incredible ease of use, they also open new avenues for phishing scams, account takeovers, and other digital theft. For businesses, especially high-volume retailers, managing the security of a gift card program is just as important as managing the sales themselves. A breach can have lasting effects on a brand's reputation and bottom line. Understanding the scope of this problem is the first step for both consumers looking to protect their gifts and businesses aiming to safeguard their operations and maintain financial integrity.
The numbers behind gift card fraud paint a stark picture of the problem's scale. It has become the most common type of payment fraud, with one report finding that 26.6% of victims had money stolen via gift cards. The financial losses are staggering, with scams costing consumers over $228 million in a single year. This trend is accelerating quickly; from 2018 to 2021, the amount of money lost to gift card fraud shot up by 364%. A major contributing factor is that many people are simply unaware of the risks, which makes them more vulnerable to sophisticated scams that trick them into sharing card details or making payments to fraudsters.
Let's be honest, gift cards can sometimes feel like forgotten treasures buried at the bottom of a drawer. Out of sight, out of mind. But that's free money just waiting to be used! To make sure your gift cards don't go to waste, keep them organized. A simple note on your phone or a designated spot in your wallet can work wonders. Set reminders to check for upcoming expiration dates—nobody wants to lose out on a free latte or that new book they've been eyeing. If you're unsure when a card expires, most retailers allow you to check balances online. And if you have a gift card for a store you're unlikely to visit? Consider reselling the gift card–it's a great way to get cash or trade it for one you'll actually use.
Want customers to use those gift cards? Make it easy and enticing! Sending friendly reminders about unused gift cards can nudge customers toward a purchase. Think about offering bonus rewards for redeeming gift cards within a certain timeframe. A little extra incentive can go a long way. Promote gift card use on social media and through email marketing. Highlighting the flexibility and convenience of gift cards can remind customers of their value. And don't forget the in-store experience. Make sure your staff is well-versed in gift card policies and can process them quickly and efficiently. A smooth and positive checkout experience encourages repeat business and future gift card purchases. Explore options like integrating gift cards with loyalty programs to further incentivize redemption and build stronger customer relationships.
A high redemption rate is a great sign that your gift card program is effective and customers are engaged. It shows people are actively using the value you offer. For any business, tracking this metric provides important insights into sales trends, customer behavior, and future revenue projections. But the redemption rate is just the beginning of the story. To understand the full financial impact of your gift card program, you need to look at what happens during and after the redemption. This requires connecting your gift card data with broader sales and customer information, which can be a challenge when data lives in different systems. A unified view is essential to see the complete picture of your program's performance.
Two of the most important metrics to watch are Average Order Value (AOV) and Customer Lifetime Value (LTV). AOV tells you if customers are spending more than the gift card's value when they redeem it. If a $50 gift card consistently leads to a $75 purchase, your program is successfully driving incremental sales. LTV helps you see if gift cards are bringing in new, loyal customers. Did that first-time gift card user come back to make more purchases? Tracking this requires a system that can follow a customer's journey over time. Understanding these metrics helps you move beyond simple redemption numbers and see how gift cards contribute to long-term, profitable growth.
It might sound strange, but a 100% redemption rate isn't always the most profitable outcome. While it shows fantastic customer engagement, it also means you're missing out on a significant revenue stream known as "breakage." As CBS News points out, breakage is the value from unredeemed gift cards that becomes pure profit for retailers. This creates a delicate balance. You want customers to use their cards to drive sales and build loyalty, but breakage is a financial reality that impacts your bottom line. Accurately accounting for this deferred revenue and eventual breakage is also a major compliance challenge. This is where having an automated system to recognize revenue correctly under standards like ASC 606 becomes critical for high-volume businesses.
Technology significantly impacts how we buy, use, and redeem gift cards. From the rise of digital gift cards to helpful reminder apps, tech advancements are changing the landscape and making it easier than ever to manage and use gift cards.
Digital gift cards are rapidly gaining popularity. In 2022, the global digital gift card market reached a staggering $342.01 billion—a substantial jump from the previous year, according to Moneyzine. Many online retailers now offer digital gift card options, providing a convenient alternative to physical cards. This growth is fueled by the widespread adoption of mobile wallets like Apple Wallet and Google Pay. These digital wallets offer a secure and organized way to store and access gift cards directly from our smartphones, reducing the risk of physical cards getting lost or forgotten. This ease of access translates to higher redemption rates, benefiting both consumers and retailers. The shift toward digital also simplifies the gifting process. Sending a digital gift card takes just a few clicks, eliminating the need for physical delivery.
Plus, recipients can instantly add the gift card to their mobile wallet, ready to use at their convenience. This seamless experience contributes to the growing preference for digital gift cards, especially among younger demographics comfortable with technology.
Beyond mobile wallets, various apps and software solutions help consumers track their gift card balances and expiration dates. These tools send timely reminders, ensuring that gift cards don't go unused. As Giftbit points out, integrating digital rewards into everyday customer activities creates a more efficient and enjoyable redemption journey. Automatic tracking and timely reminders contribute to increased redemption rates. For retailers, this means more sales and fewer unredeemed funds. Furthermore, technology allows businesses to gather valuable data on gift card usage.
Tracking when and how gift cards are redeemed provides insights into customer behavior and spending patterns. This data-driven approach enables retailers to tailor their marketing efforts and optimize their gift card strategies, ultimately improving overall redemption percentages. By understanding how customers use gift cards, businesses can create more targeted promotions and enhance the customer experience.
The future of gift card redemption is digital, and it's evolving quickly. Think integrated rewards programs where you earn points or a digital gift card for everyday purchases, making redemption seamless and more appealing. This shift toward digital rewards creates a more engaging customer experience, encouraging faster redemption. The sheer growth of the digital gift card market, valued at over $342 billion in 2022, speaks volumes about this trend. We can expect to see more innovative ways businesses incorporate digital rewards into their customer interactions.
Consumer behavior plays a significant role in shaping the future of gift cards. While many appreciate the flexibility of gift cards, a surprising number of people let them go unused. Studies show nearly 29% of Americans have unintentionally let a gift card expire, and a quarter have lost at least one. Millennials seem to hold the most unredeemed value, averaging $226 per person. However, the vast majority of consumers (90%) plan to spend beyond the value of their gift cards, indicating a continued interest in using them as a payment method. This suggests that retailers who focus on convenience and user experience can tap into this spending potential and drive higher redemption rates.
Let's be honest, gift cards are great. But sometimes they end up forgotten at the bottom of a drawer or lost in the digital abyss. Here's how to make the most of every gift card:
Think of gift cards like that perfectly ripe avocado—best enjoyed fresh. Most people redeem their gift cards within six months, so join the club and put that card to use sooner rather than later. You're more likely to remember where it is and what you wanted if you use it while it's still top of mind.
While federal law generally protects your gift card balance from expiring for five years, some states have longer grace periods. New York, for example, gives you nine years. Check the fine print on the back of the card or the retailer's website for specifics. Knowing the expiration date helps you prioritize which cards to use first.
Not interested in the coffee shop gift card your aunt gave you? No problem. Resale sites offer a way to trade unwanted gift cards for cash. While you might not get full value, receiving 70% to 80% is often better than letting the card gather dust. It's a quick way to turn an unwanted gift into something useful.
What exactly is gift card breakage?
Gift card breakage is the industry term for the portion of gift card value that goes unredeemed. It represents the money consumers spend on gift cards that ultimately isn't used to purchase goods or services, effectively becoming profit for the retailer.
My gift card expired. Is my money gone?
Not necessarily. Federal regulations generally protect your gift card balance from expiring for at least five years from the date of purchase. Some states have even more consumer-friendly laws extending this period. Check your state's regulations and the retailer's policy for specifics.
Are digital gift cards better than physical ones?
Both have their pros and cons. Digital gift cards offer the convenience of easy storage and accessibility through mobile wallets, reducing the risk of loss. Physical gift cards, however, can be a more tangible and personal gift, especially for special occasions. Ultimately, the "better" choice depends on individual preferences and how you plan to use the gift card.
Why should I care about gift card redemption rates?
Understanding redemption rates helps you, as a consumer, make informed decisions about purchasing and using gift cards effectively. Knowing how and when gift cards are typically redeemed can help you maximize their value and avoid common pitfalls like forgetting about them or letting them expire. For businesses, these rates offer valuable insights into customer behavior and the effectiveness of their gift card programs.
What can retailers do to encourage customers to use their gift cards?
Retailers can implement several strategies to boost gift card redemption. Sending reminders about unused balances, offering bonus rewards for timely redemption, and promoting gift card use through marketing campaigns can all encourage customers to put their gift cards to use. A smooth and efficient in-store redemption process also contributes positively to the customer experience and encourages future gift card purchases.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
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