How do stores and companies make money off of gift cards?

Question

Like how does the store or company profit off of a $20 gift card that costs $20?

In: Economics

Answer 1

For their own gift cards, they don’t, they make it when that card is redeemed in the same way they make money selling any of their products. In fact, for accounting purposes, a gift card is generally a liability (a debt the company owes).

For other cards (like iTunes gift cards, or Outback or what have you) that you’re buying from say Target or the grocery store, they usually buy them at some reduced rate from a distributor or directly from the source.