Consumers tend to own a lot of cards – gift cards, debit cards, and credit cards – without knowing the main differences and similarities of each.
Let’s start off by differentiating “open-loop” from “closed-loop” cards. “Open-loop” cards are gift cards issued by merchants for use at stores and restaurants such as Amazon.com, Barnes & Noble, and Ebay. “Closed-loop” cards, on the other hand, are issued by banks and have a logo on it such as Visa, MasterCard, or AmEx.
Restaurant and store specific gift cards offer certain privileges such as free shipping, but may also include purchase fees and expiration dates. Additionally, they also have minimum and maximum dollar amounts. Bank-issued cards, whether debit or credit, may carry extra fees because consumers are actually buying the card from the bank and not from the credit card company. Bankcard Services offers merchants convenience and security on payment solutions that will greatly benefit merchants and retailers.
Gift cards issued by banks are actually debit cards in the sense that they do not require PINs when used in transactions. By doing so, consumers tend to use them as credit cards and credit card processing networks process the transaction, rather than ATM networks. Debit cards processed as credit cards give banks an “interchange” fee which is a percentage of the amount rather than a flat fee if debit cards are processed as debit cards instead of credit cards.
Moreover, gift cards from banks can be used to make online purchases. Thus, it is important to keep your gift cards even if the card has no more money on it because retailers may need to see the card upon return or exchange of the item bought in order to reload the money onto your card as refund.
Because of the Credit CARD Act – Card Accountability Responsibility and Disclosure Act – consumers will be protected because expiration dates will be at a minimum of five years from date of issue while dormancy fees will not take effect less than one year after the card is sold. However, because credit card processing companies and issuers will need to find ways to increase revenue, consumers may take the hit on credit card services.
In summary, it’s always best to call the credit card issuer to clarify fees and rates on your card.