A gift card can be the perfect gift. Except when it’s not.
Your generous out-of-town aunt sends you a $100 gift card for your birthday good at AMC theaters. Too bad the theater chain in your neighborhood is a Cinemark.
Or your clueless cousin buys you a $50 card to PetSmart, forgetting that your Doberman, Cuddles, passed away.
Instead of tossing those rejects in a junk drawer or re-gifting them, a growing number of consumers are using online gift card exchanges to trade their unused cards for cash.
At the same time, savvy shoppers are picking up those castoffs at a discount — in essence devising their own way to get markdowns on goods they buy.
An estimated $500 million to $700 million worth of gift cards went unused last year, according to CEB TowerGroup in Arlington, Virginia.
(That’s down from close to $7 billion in 2008 before regulators eliminated numerous junk fees and extended expiration dates to a minimum of five years.)
“I use exchanges primarily to buy cards because I find it’s an easy way to save,” said Kyle Taylor, founder of The Penny Hoarder in St. Petersburg, Florida, a blog dedicated to offbeat ways to make and save money.
Taylor has used exchanges to sell a couple of unwanted cards and to buy around 50 of them over the last few years.
“I bought a home last year and needed a washer, dryer and fridge,” he said. “I bought Lowe’s cards and stacked them with coupons. I was able to save a ton.”
Taylor said he’s never had any problems using exchanges or been dissatisfied.
Still, there are risks, so it helps to know how the exchanges work before plunging in.
First, sellers shouldn’t expect to get paid full price.
Prices are set based on supply and demand, plus exchanges take a cut. Sellers type in the gift card number, PIN and card’s value, then send in the card and get paid through PayPal, via check, direct deposit or even another gift card.
Other sites list cards from sellers who get paid only if the card is sold.
Big stores, bigger prices
Cards from big-name retailers such as Wal-Mart, Target and Home Depot will fetch the most cash for sellers, sometimes as much as 95 percent of the balance, Taylor said.
Cards from lesser known, regional stores might be worth only 70 percent to 80 percent of their value.
On the flip side, buyers will find the biggest bargains on cards from smaller, less popular stores.
At Cardcash.com, for example, American Eagle Outfitters gift cards were recently going for 30 percent off (a $200 card was selling for $140), while Best Buy cards were being marked down by only 2 percent to 4 percent.
Taylor recommends using a listings aggregator, such as GiftCardGranny.com, which makes it easy to compare offerings from numerous exchanges.
He also recommends that buyers check the balance on a card as soon as they receive it.
Reputable sites will verify the balance of gift cards before selling them and offer a money-back guarantee or replacement if the amount isn’t as promised, according to the Retail Gift Card Association in Washington, D.C.
In addition, the best sites won’t take long to pay sellers and they offer tracking to help protect sellers if payments are lost.
The association has been working with several “higher end, reputable” exchanges, including Raise.com and Cardpool.com, on a set of best practices for exchanges to follow to help protect consumers, said Timm Walsh, associatiion chairman.
Walsh’s group is concerned with helping retailers protect their brands from thieves, he said. The association hopes to have the best practices guidelines ready in time for the busy holiday shopping season this year.
He said potential problems with gift card exchanges are similar to risks associated with other second-hand markets.
“When you buy something used, you hope when you go to plug it in, it works,” Walsh said.
“In a lot of cases, consumers don’t understand that if I sell a card, I still have the keys to take the account and PIN and still redeem it before the person who bought it redeems it.”
Ticket exchanges for concerts and professional sporting events have developed ways over many years to help protect buyers and sellers, he said, but the gift card exchange industry “is still developing and evolving.”
“It’s like everything else, the better ones will thrive and the others will go by the wayside,” he said.
For more tips on using gift card exchanges, visit www.thergca.org.