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

The same way the store makes money by selling their merchandise.

If you walk into a store with $20 cash, and leave the store with $20 worth of merchandise, the store likely turned a profit on the merchandise they sold you.

It’s the same thing with a gift card: it starts with someone paying $20 cash and ends with someone else leaving with $20 worth of merchandise. That’s still a profit.