Why Do Companies Give Rebates as Gift Cards?

You’ve seen the offers. Sign up for a satellite TV package and get a $100 prepaid card. Get the right services from your internet provider and get a $300 Visa prepaid card. Verizon will give you a $500 Verizon gift card if you switch and keep your phone.

Why do these companies give out gift cards? Doesn’t that take more effort than just sending a check or putting a credit on your statement?

Reasons Companies Offer Gift Cards Instead of Cash

There are two main reasons. Gift card issuers often offer a discount to companies willing to buy a large quantity of gift cards. Just a 10% discount on $100,000 worth of gift cards is a $10,000 savings. Imagine the savings for larger purchases by big corporations.

The other reason is that gift cards often go unused in full or in part. Gift cards from their own company, and even MasterCard-type gift cards are only an expense when they are used. For every $50 Amazon gift card that gets stuck in a drawer and forgotten about, Amazon keeps another $50 that would have been an expense if paid out in cash. 

Even when a card is used, the company may still profit if the gift card is only partially used. Many customers consider a purchase with a gift card to be “free” because it requires none of their own money. In order to keep the transaction “free,” they will be sure to use less than the full value of the card. For example, one might use a $250 gift card to a $240 iPad instead of buying the more expensive $265 version. With just $10 left on the gift card, it becomes less important and easier to forget about. Customers often don’t get around to using the remaining value because it “can’t buy anything.” That leftover $10 goes right to the company’s bottom line.

Money for Unwanted Gift Cards

While gift cards are a great deal for the companies that give them out as a substitute for cash, it may not be the best deal for you. You may need that $300 for other expenses, and $300 worth of new phone cases won’t help pay the water bill.