Demystifying gift card processors: Unlocking the power of gift card processing in a closed-loop system

Example of short intro text for a blog article

October 16, 2023

In the world of professional gifting, gift cards have emerged as a versatile tool that offers businesses and brands an innovative way to boost customer loyalty, motivate employees, and increase sales. But what makes these gift cards such a powerful asset for businesses, and how do gift card processors play a pivotal role in their operation? In this comprehensive guide, we will delve into the world of gift card processing within a closed-loop system, and we will explore the myriad benefits of offering gift cards as part of your corporate strategy.

Understanding the Gift Card Processing Ecosystem

Gift card processing is an integral part of the closed-loop system that ensures the smooth operation of gift cards. Before we delve into the benefits, let’s take a closer look at how gift card processing works.

The Role of Gift Card Processors

Gift card processors, often integrated into a business’s payment processing software, play a fundamental role in managing gift card transactions. These processors act as intermediaries, facilitating the secure and efficient handling of gift card payments between the business, the customer, and the chosen merchants or locations.

Gift card processors serve a multi-faceted function:

  • Transaction Authorization: They validate the authenticity of the gift card and confirm the availability of funds before authorizing a purchase.
  • Balance Tracking: Gift card processors continuously track the remaining balance on the gift card to ensure that customers are aware of their available funds.
  • Settlement and Reporting: These processors settle gift card transactions, ensuring the business and merchant are appropriately compensated. They also provide valuable reporting and insights into gift card sales and redemptions.

The Gift Card Transaction Process

  1. Purchase: The customer buys a gift card, often at a physical location or online, and loads it with the desired amount. Either this card already has a unique gift card number or or the customer receives one.
  2. Activation: The gift card processor activates the card, linking it to the purchased value, and assigns it a unique identification code.
  3. Redemption: When the recipient wishes to redeem the card, the processor verifies the card’s authenticity, confirms the available balance, and processes the payment at the point of sale.
  4. Settlement: The processor facilitates the transfer of funds from the business to the merchant where the redemption occurs.
  5. Reporting: The processor generates transaction reports, helping businesses track the performance and usage of their gift card program.

Benefits of Offering Gift Cards

Now that we’ve explored the mechanics of gift card processing in a closed-loop system, let’s dive into the compelling reasons why offering gift cards should be a vital component of your corporate strategy.

  1. Increased Revenue

Gift cards can be likened to an interest-free loan provided by your customers. When a customer purchases a gift card, they are essentially committing to spending money at your establishment in the future. This increases your cash flow and boosts revenue. Even if the full value of the card isn’t redeemed, you benefit from the initial purchase.

  1. Enhanced Customer Loyalty

Gift cards have a unique power to bring customers back to your business. Once a customer has a gift card in their wallet, they are more likely to return to your establishment to redeem it. This results in repeat business, fostering customer loyalty and long-term relationships. Also, your customers will act as brand embassadors, when gifting others with their favorite brand.

  1. Targeted Marketing

Gift cards provide a valuable opportunity to gather data and insights about your customers. By tracking gift card purchases and redemptions, you can gain a better understanding of customer behaviour and preferences. This data can be used to tailor marketing campaigns and promotions to specific customer segments.

  1. Brand Visibility

Gift cards serve as mini-billboards in your customers’ wallets. The gift card design and branding offer free advertising each time the recipient checks their balance or uses the card. This constant brand exposure keeps your business top-of-mind.

  1. Streamlined Payment Processing

Gift card processors integrate seamlessly with your payment processing software, making transactions efficient and secure. This not only enhances the customer experience but also simplifies accounting and reporting for your business.

  1. Cash Flow Control

Unlike other forms of promotions, gift cards allow you to control your cash flow. The funds loaded onto gift cards are a liability, which means you have the cash in hand until the cards are redeemed. This can be especially beneficial for seasonal businesses.

  1. Upselling Opportunities

Gift cards often lead to upselling opportunities. Customers may spend more than the card’s value when they visit your business, increasing the average transaction size.

  1. Reduced Fraud Risk

Gift card processors employ security measures to prevent fraud and protect the card’s balance. This reduces the risk of financial losses due to unauthorized card usage.

Maximizing the Power of Gift Cards

To leverage the full potential of gift cards, businesses should consider the following strategies:

  1. Gift Card Customization

Customize gift cards with your brand’s logo, design, and messaging to make them more appealing to recipients and reinforce your brand image.

  1. Promotions and Loyalty Programs

Incorporate gift cards into your promotions and loyalty programs. Offer gift cards as rewards or incentives to encourage repeat business and customer loyalty.

  1. Data Analytics

Leverage the data collected from gift card transactions to gain insights into your customers’ behaviour and preferences. Use this data to refine your marketing strategies.

  1. Mobile and Digital Integration

Consider offering digital gift cards that can be easily redeemed through mobile apps or online, catering to the growing demand for digital solutions.

  1. Employee Incentives

Use gift cards as incentives for employees. Recognize and reward their hard work, which can lead to increased motivation and job satisfaction.

two people using a tablet to contact epay


Gift card processors are the silent heroes that ensure the smooth operation of gift card programs in a closed-loop system. With their assistance, businesses can reap the benefits of offering gift cards, including increased revenue, enhanced customer loyalty, targeted marketing, and streamlined payment processing. To harness the full potential of gift cards, it’s essential for professionals to customize gift cards, incorporate them into promotions and loyalty programs, analyze data, and consider mobile and digital integration. Additionally, using gift cards as employee incentives can foster a motivated and satisfied workforce.

In the world of professional gifting, gift cards remain a powerful tool, and their ability to drive revenue, loyalty, and engagement makes them a valuable addition to any corporate strategy.