Controlling Breakage

Breakage is a term merchants use to describe the unredeemed value that consumers hold in gift cards, store credits, transit fare cards, airline miles and other “rewards” schemes.  In 2009, $87 billion worth of gift cards was purchased.  Also in 2009, there was an accumulated $30 billion of unredeemed gift cards in consumer’s hands.  The $30 billion is a result of breakage year after year – most recently from a 6% breakage rate, but from more than 10% in earlier years.  Unused store credits, fare cards and airline miles doubtless total to a similar value.

In 2010, gift cards averaged $33.73 in purchased value and 90% of them are drained to zero value within 1 month.  Gift cards tied to quick-service restaurants were “reloaded” in 47% of cases indicating high popularity and they are reloaded twice as often as cards tied to other stores. 

Breakage also applies to store credits for returned items and scrip from coin counters or “empties returns” kiosks at the front of retail stores, but those breakage rates are not revealed.   Transit fare cards seem to regularly have an unused balance lower than the fare needed to reach “head office” where the unused fare can be redeemed.  Airline miles can have substantial value yet at the same time have restrictions that limit usefulness, leading to expiration of the miles.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 limited restrictions such as quick expiry dates and inactivity fees that had often applied to gift cards.  The result is likely seen in the reduced rate of breakage.

Expiry is not the only cause of breakage.  Forgetfulness, disinterest in the merchandise at the gift-card store and low remaining balance on the card Items are common other reasons for breakage.

To avoid breakage, consumers can register their gift cards and associated PINs at a site such as PlasticJungle.com where cards can be sold, bought, or just safely tracked for remaining balance.

Cards that fall into a low balance state can be donated to where they can do some good.

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective. 

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