How do Gift Card Buyback Companies make money buying Gift Cards to Stores that aren’t popular or are failing. Example: Kmart. Will they lose money when it goes under?

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How do Gift Card Buyback Companies make money buying Gift Cards to Stores that aren’t popular or are failing. Example: Kmart. Will they lose money when it goes under?

In: Economics

There is really only one company in the western world that sells gift cards – Blackhawk Network Holdings. What they’re selling isn’t actually a gift card, its a prepaid Visa that is just branded with a corporate logo. So when you buy a Kmart card you aren’t actually paying Kmart anything and you can use that card more or less anywhere.

People don’t realize that and so will sell gift cards for less than the face value. So if you’re a company that has a payment processor that charges you 5%, you can make money by buying gift cards for <95% of the face value and then having the payment processor transfer the funds into your own bank account.