A $100 Gift Card Isn’t Worth $100, Says GiftRocket

If you’ve already bought someone a gift card for the holidays, don’t read the rest of this article. It’ll just make you feel bad.

Okay, still with me? It turns out most gift cards are worth less than their face value. Quite a lot less—at least, judging from the resale value of gift cards on exchanges like Cardpool, Plastic Jungle, GiftCardRescue, and Gift Card Granny. These marketplaces say the average value of a $100 card is more like $72 if you try to sell it to someone else for cash, according to a survey by San Francisco-based GiftRocket.

The Y Combinator-backed startup, which we profiled here in April 2011, isn’t exactly an impartial source. It’s trying to get people to give up on the plastic stored-value cards you can buy at Walmart, Starbucks, Barnes & Noble, and hundreds of other stores and switch to its all-digital cards, which, of course, are called GiftRockets. The argument is that GiftRockets, which can be redeemed for cash, are always worth the face value.

But the fact remains that a lot of gift-card recipients find it inconvenient to use the cards, and end up trying to sell them for hard cash, which is far more fungible. And when they do that, they take a big hit—up to 50 percent for the less popular cards, according to GiftRocket’s study.

GiftRocket co-founder Kapil Kale

A store-brand gift card’s main selling point is that it’s not as gauche as giving cash. The message is “Go buy yourself something nice at this store I know you like.” And after all, it’s the thought that counts. But it might be nice if the thought didn’t come with so many strings attached. “Basically you’re giving them a more restrictive form of money in exchange for the packaging,” says GiftRocket co-founder Kapil Kale.

GiftRocket shared the results in an interactive infographic published yesterday. The startup found that the average resale value of a $100 Whole Foods gift card is $91; Walmart, $87; Toys R Us, $82; Starbucks, $80; Barnes & Noble, $77; Lord & Taylor, $70. The larger the retailer in annual-revenue terms, the more value their cards retain, the startup discovered: Cards from national giants like Best Buy, Walmart, Costco, and Target snag the highest prices on the resale markets. Small retailers like Shopko, a chain of 13 stores based in Wisconsin, suffer worst: its cards go for only 60 cents on the dollar.

“The key point is that when you buy someone a $100 gift card, it’s not actually worth $100, because there is a chance they aren’t going to be able to use it,” Kale says “When you buy someone a GiftRocket, you know they can use it. We’re trying to combine thoughtfulness with a more effective form of money transfer.”

A GiftRocket arrives in the form of a fancily-designed e-mail that resembles a greeting card. The giver has the option to suggest a store or location where the recipient should spend the money, but the recipient can redeem the gift immediately, whether or not they choose to spend it as suggested.

That’s a big change from GiftRocket’s original formula. The company started out with an elaborate smartphone-based system that would only release the cash if the recipient checked in at the specified location. “Our friends thought that was cool, but a lot of people thought it was too complicated,” Kale says. “A lot of the time you don’t even know if the person you are sending a gift to has a smartphone. So now we’re just letting people redeem up front.”

In another shift, GiftRocket plans to add payment options this week that make it easier to collect a cash gift. In the past, the startup offered only one option: PayPal. Now recipients can also opt to have a gift deposited directly to their bank account, or to have GiftRocket cut them a check and send it by snail mail.

“The amount of negative e-mail we received about PayPal is stunning,” says Kale. “It’s not designed in a user-friendly way. It’s really designed for power users who are buying and selling stuff on eBay. For lightweight uses, it’s not really suitable.”

Kale says he hopes that the new redemption options will encourage people to think of GiftRocket as an easy way to send money for all occasions. “We are really a payments company,” he says. But he adds that “we don’t want to be the next-generation PayPal—the point is it’s an extremely convenient way to send a gift.”

GiftRocket makes money by charging a 5 percent service fee, plus $1, for every gift it handles—so a $100 GiftRocket would cost the giver $106. That makes a GiftRocket a bit more expensive than a big-box-store gift card, but Kale says the startup’s customer research shows that “people don’t mind” the service fee. “It’s a social product—when you go into a Hallmark do you really look at the price of a card? And it’s worth it, if it saves you a trip to the store.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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