How to Run a Gift Card Program: Laws, Tips & Mistakes to Avoid

Gift cards are very useful for both businesses and their customers. They increase sales, help with better cash flow, and make sure the customer comes back. But if you do not take care of the legal aspects, you will find yourself in legal pitfalls. Poor execution is going to give you lots of issues.

If you want to run a gift card program in the U.S., there are some legal rules, compliance requirements, and a few easy-to-miss risks. From state laws to federal regulations, it’s important to know what’s expected, especially if you want to avoid fines or unhappy customers.

In this guide, we are going to discuss how you can run a custom gift card program the right way while staying compliant. We will share the best practices and highlight mistakes that could cost you. So, let’s dive in!

Gift Card Program Overview

A gift card program lets your business sell prepaid cards that customers can buy now and use later. These cards can be physical (like the ones near the cash register) or digital (sent by email or through an app). Either way, they give customers flexibility and help you increase sales, even before they buy anything.

Gift cards are a hit because they’re super easy to use and make great gifts. For your business, they attract new customers, bring in cash upfront, and keep people coming back. Plus, when someone gets a gift card, they often end up spending more than the card’s value when they shop with you.

Types of Gift Cards

Before launching a gift card program, you should know the different kinds of gift cards available. Each type works a little differently, so pick the one that fits your business and what your customers like.

Closed-Loop Gift Cards

These are the most common types for small and medium-sized businesses. A closed-loop gift card can only be used at your business. For example, if you run a coffee shop, the gift card you sell is only valid at your shop.

Why it works: It keeps spending within your brand and encourages repeat visits. It’s also easier to manage and cheaper to set up than open-loop options.

Open-Loop Gift Cards

These are usually branded with names like Visa, Mastercard, or American Express. They can be used anywhere those cards are accepted. You’ll often see these sold in large retailers or grocery stores.

Why it’s less common for small businesses: They require working with a third-party financial provider, which comes with higher fees and more rules. They’re better suited for large companies or multi-brand setups.

Digital (E-Gift) Cards

These are sent by email or text. They can be used online or in-store, depending on how your system is set up. Digital gift cards are growing fast because they’re convenient, fast to deliver, and easy to track.

Why businesses love them: No printing, no shipping, and customers can send them instantly. It is perfect for last-minute gifts.

Reloadable Gift Cards

These let customers add more money to the same card, making it reusable over time. This type is common in loyalty programs or customer rewards systems.

When to use them: If you want to encourage ongoing use or offer customers a way to manage their budget with your business.

Start simple. Most small businesses begin with closed-loop or digital gift cards. As your program grows, you can explore more options based on demand and how customers prefer to shop.

How Gift Card Programs Help Your Business

A gift card program isn’t just a nice add-on; it can actually make a big difference in how your business grows. It can help your business in the following ways:

• Boosts Cash Flow: When someone buys a gift card, you get paid upfront, even before any product or service is delivered. That means instant revenue. For small businesses, this can be a powerful way to manage cash during slow seasons or before big sales pushes.
• Brings in New Customers: Gift cards are often given as presents. So when someone buys one for a friend or family member, you’re not just making a sale, you’re also getting a new customer. It’s an easy way to expand your reach without spending on ads.
• Encourages Repeat Visits: Many people spend more than the value of their gift card when they redeem it. They may also come back again to use leftover balances. This gives you more chances to build a loyal customer relationship.
• Improves Brand Awareness: When people see your branded gift cards online, in-store, or in someone’s hand, it reinforces your brand. It’s a simple way to keep your business top of mind, especially around holidays or special occasions.
• Reduces Returns: Unlike buying a specific product, giving a gift card lets the recipient choose what they want. This means fewer returns, fewer exchanges, and a better overall experience for everyone.

In short, gift card programs can drive sales, attract new faces, and build stronger connections with your customers. Done right, it’s more than a tool; it’s a smart growth strategy.

Steps to Run a Successful Gift Card Program

The process to run a gift card program takes planning, setup, and a good user experience to make it truly work. Let us give you a step-by-step guide to help you build a program that actually drives revenue and customer loyalty.

Step 1. Set Clear Goals

Decide what you want the gift card program to do. You may want to boost sales, attract new customers, or improve retention. Clear goals help guide the setup and marketing strategy.

Step 2. Choose the Right Platform

Use a system that’s easy to manage and integrates with your online store. Most eCommerce platforms like Shopify, WooCommerce, or Magento offer built-in or third-party gift card solutions.

If you’re aiming to combine rewards, referrals, and gift cards under one roof, working with a dedicated loyalty partner like us can offer a more seamless experience for both you and your customers.

Step 3. Create Flexible Gift Card Options

Let customers choose from different price ranges or add custom amounts. Include options for digital delivery, print-at-home, or physical cards if applicable.

Step 4. Design a Simple User Experience

Make sure the gift card is easy to find, purchase, and redeem. Add clear instructions and reduce friction at every step, from selecting the amount to applying it at checkout.

Step 5. Promote Your Gift Cards

Use your homepage, product pages, emails, and social media to remind customers about your gift cards, especially during holidays, birthdays, and events.

Step 6. Train Your Support Team

Make sure your customer service team knows how the program works. They should be ready to answer questions, help with redemptions, or resend lost cards if needed.

Step 7. Track Performance and Adjust

Monitor usage, redemptions, and sales lift. See what’s working and adjust your offers, placement, or email campaigns to improve the results over time.

In summary, running a successful gift card program takes more than just setup. It needs clear goals, smooth UX, and the right tools. From platform selection to team training, every step matters. With the right strategy, gift cards can drive sales, retention, and brand loyalty at scale.

Legal & Compliance Pitfalls in Gift Card Programs

When you decide that you are going to run a gift card program, you should know that there are rules and regulations. You need to follow them to make sure your program runs smoothly. In the U.S., gift card laws can be surprisingly complex, and missing a small detail can lead to big headaches later. Let us have a look at the key areas you need to watch out for:

Expiration Dates and Inactivity Fees

Gift card expiration laws are tightly regulated in the U.S. Most businesses can’t just set any expiration date or charge hidden fees. The Credit CARD Act requires that cards stay valid for at least five years. Some states go even further and ban expiration entirely. Getting this wrong could mean legal trouble or losing customer trust.

• Federal law requires a 5-year minimum validity period.
• Some states ban expiration dates or restrict inactive fees.
• You must clearly disclose terms and conditions upfront.
• Digital cards follow the same federal rules as physical ones.

Escheatment (Unclaimed Property Laws)

If a customer never uses a gift card, you might not be able to keep the money forever. Many states treat unused balances as unclaimed property. That means you have to report the amount and eventually turn it over to the state. This is known as escheatment, and the rules vary by state.

• Each state has its own escheatment timeline (some as short as 2-3 years).
• You may need to report unredeemed balances annually.
• Failure to comply can lead to audits or penalties.
• Exemptions may apply to small businesses in some states.

Financial Liability and Accounting

When you sell a gift card, you’re taking payment before delivering the product or service. That’s considered a liability on your books. Until the card is used, the money isn’t technically earned. This means you need to account for it correctly to stay compliant with tax and financial laws.

• Keep a clear record of all outstanding gift card balances.
• Work with an accountant to handle liabilities properly.
• Recognize revenue only when the gift card is redeemed.
• Poor tracking can lead to financial misstatements.

Cross-State & Online Sales Compliance

If you sell gift cards across state lines or online, you’re not just dealing with your local laws anymore. You need to understand and follow the laws of the states where your customers are located. This includes rules on expiration, fees, and escheatment.

• Some states prohibit inactivity or maintenance fees.
• Others require specific customer disclosures.
• Online sales can trigger multi-state compliance requirements.
• It’s smart to review laws in your top-selling states regularly.

In short, gift card programs come with legal obligations beyond just selling and redeeming cards. From expiration laws to unclaimed property rules and multi-state compliance, even small oversights can lead to major risks for your business.

Mistakes to Avoid While Running a Gift Card Program

Running a gift card program sounds simple, but many businesses run into problems by skipping the small details. These mistakes can cost you sales, create legal issues, or frustrate customers. Here are some of the most common missteps and how to avoid them:

• Not setting clear terms and conditions: A common mistake businesses make is launching gift cards without clearly defined terms. If customers don’t know the rules, like expiration dates, refund policies, or how to use the card, they may feel misled or frustrated. It can also open your business up to disputes or compliance issues.
• Failing to track outstanding balances: Many small businesses forget that gift card revenue isn’t fully earned until the card is used. Treating it like profit too early can cause problems with accounting and taxes. You need a reliable system, like a POS tool or integrated software, that tracks sold, redeemed, and remaining balances in real time.
• Overlooking legal compliance: There are both federal and state-level regulations you need to follow, even if you’re just a small shop. Things like expiration dates, inactivity fees, and unclaimed property rules (escheatment) vary by location. If you’re selling across state lines or online, these rules get even trickier.
• Making redemption difficult: A gift card should feel like a treat, not a hassle. If customers struggle to redeem it because of technical issues, unclear steps, or strict conditions, they’re less likely to come back. A smooth redemption process builds trust and boosts repeat visits. Keep it simple, flexible, and mobile-friendly if possible.
• Not offering digital gift cards: Physical cards are fine, but many customers now expect digital options. Skipping e-gift cards means you’re missing out on convenience shoppers, last-minute gifters, and online buyers. Adding a digital option doesn’t have to be complex; it just needs to be easy to buy, send, and use across your sales channels.

In essence, many businesses make common mistakes when running gift card programs, like not setting clear terms or failing to track balances properly. Overlooking legal rules or making redemption complicated can frustrate customers and lead to compliance issues.

Gift Card Program Best Practices

We’ve discussed that a gift card program can boost sales, attract new customers, and improve brand loyalty when you do it right. Below are key best practices to make sure your program performs well and feels effortless for your customers:

• Make It Easy to Find and Buy: Place gift cards in your top navigation, homepage, and product pages. Keep the buying process short, with clear options for amounts, custom messages, and delivery (email or print).
• Offer Flexible Denominations: Let customers choose from preset amounts or enter custom values. Flexibility helps your gift card appeal to more budgets, especially during holidays and peak seasons.
• Keep Expiration Policies Clear: Always display your terms up front. Let customers know if there’s an expiry date, where they can check their balance, and how the card can be used.
• Make Redemption Simple: Redemption should work across desktop and mobile. Keep it fast, apply the balance automatically at checkout or through a simple input field.
• Enable Personalization: Let buyers add a name, message, or image. Personalized gift cards feel more thoughtful, which makes them more likely to be purchased as meaningful gifts.
• Promote Gift Cards Year-Round: Don’t just push them during holidays. Use your email, social media, and product pages to remind customers that gift cards are perfect for housewarmings, weddings, and last-minute gifts.
• Track and Improve: Use analytics to track purchases, redemptions, and unused balances. This helps you understand trends and tweak your promotions for better performance.

In short, a well-run gift card program can drive sales and strengthen customer loyalty, but it needs to be designed with the user in mind. Key best practices include making gift cards easy to find, offering flexible amounts, and ensuring a smooth redemption experience. If you’re looking to take it further, you can explore our tailored incentive and loyalty program solutions.

Summing Up

Gift card programs can do a lot more than just boost holiday sales. They can strengthen customer loyalty, bring in new business, and keep your brand top of mind year-round. But to get the full benefit, it’s important to plan carefully and follow key best practices. From choosing the right card type to setting clear terms, every detail matters.

Legal and compliance issues are easy to overlook, but they can create serious problems if ignored. Things like expiration laws, escheatment rules, and accounting liabilities vary by state and require attention. On top of that, mistakes like poor tracking or limited redemption options can frustrate customers and impact your brand experience.If you’re looking to launch or improve your gift card program, we can help. Our team specializes in incentive and loyalty solutions designed to fit your business needs. Get in touch with us today!

FAQs on Gift Card Program