Gift cards for online stores: how they work and what to decide

The short answer

An online gift card is a stored balance with a unique code. A buyer pays for it, the recipient receives the code by email or post, and the balance is reduced when it is used at checkout. You must decide the amounts, delivery method, expiry and refund rules, and how to prevent misuse.

What is happening behind a gift card

A gift card is a record in your system: a unique code, a starting value and a running balance. When someone buys one, the store creates the code and delivers it. When the recipient enters the code at checkout, the system checks it exists and has a balance, takes off the amount used and keeps the remainder for next time.

The money was received at the time of sale, but the goods have not yet been supplied. That is why gift cards are treated differently from ordinary sales in your books, and why the rules about them matter more than the button on the product page suggests.

Digital, physical or both

Most online stores begin with a digital card sent by email. It arrives within moments, which suits last-minute buyers, and there is nothing to print or post.

Whichever you choose, let the buyer set the recipient's name, a short message and the delivery date. Delivery on a chosen date is useful for birthdays, and the email should clearly state the amount, the code, how to redeem it and who sent it. Test that the email arrives; our guide to email deliverability explains why messages go missing.

Decisions to make before launch

1. Amounts. Fixed values are simpler, while a custom amount suits stores with a wide price range. Set a minimum and a maximum.
2. Where it can be used. Online only, or online and in a shop? If you also sell in person, the balance must be shared between both systems.
3. What it can buy. Can it pay for shipping, taxes and other gift cards? Many stores do not allow a gift card to buy another one.
4. Part payment. If the order is more than the balance, the customer pays the rest by another method. If it is less, the balance remains.
5. Expiry. Some countries and states limit or ban expiry dates, or set minimum periods. Check the rules where you sell.
6. Refunds. State whether a gift card can be refunded, and what happens when an order paid by gift card is returned.

Put the answers in your terms, and keep the wording consistent with your other policy pages, as listed in the ecommerce policy pages checklist.

The buying and redeeming experience

For the buyer, keep the page short: choose an amount, add the recipient and message, pick a delivery date and pay. Show a preview of the email so the buyer knows what the recipient sees.

For redemption, provide a clear box at checkout labelled for gift card or promotional code, and show the balance applied before payment. Many stores confuse customers by using one box for both gift cards and discounts, so label it clearly. The balance after a purchase should be shown on the order confirmation.

Let a card holder check their remaining balance without logging in, but protect that page against repeated guessing, for example with limits on attempts. Because a card represents money, treat the buyer's order confirmation as a receipt and keep a record of which code was issued.

Fraud and misuse

Gift cards attract fraud because they behave like cash. Criminals may use stolen cards to buy gift cards, then spend the balance quickly. Others try to guess codes.

• Generate long, random codes that cannot be guessed from the one before.
• Rate-limit the redemption and balance-check pages.
• Review unusually large or repeated gift card orders before delivery.
• Consider delaying delivery for first-time buyers placing large orders.
• Log every use of a code so that disputes can be traced.

Most of the protection comes from your payment provider and fraud settings; ecommerce fraud prevention basics goes through the wider picture. If a chargeback occurs after a card has been spent, you may lose both the money and the value used, so the checks above matter.

Accounting, tax and the law

Because the goods have not yet been supplied, the unspent balance is usually recorded as a liability, not as ordinary revenue. How it is recorded and when sales tax or VAT applies differs between the USA, UK, UAE, Australia, Singapore and Japan, so ask your accountant before the first sale. Rules on unclaimed balances, expiry and consumer rights also differ by place.

Your platform may handle some of this and leave the rest to you, so check what its gift card feature records and reports. Keep a running list of outstanding balances; you will need it at the end of the financial year.

Wording to put on the gift card page

Clear wording reduces support messages and disputes. State the following in plain language near the purchase button, and repeat it in the email the recipient receives.

• How the card can be used: online only, or also in a shop.
• Whether it has an expiry date, and what that date is.
• Whether it can be exchanged for cash or refunded, and in which cases.
• What to do if the card is lost or the email does not arrive.
• Who to contact, with a working address or form.

Think too about the recipient who does not know the shop. A short line on what you sell, with a link to the best-selling categories, helps them spend the balance. If the recipient lives in a different country from the buyer, make sure the card can be spent in the currency and delivery area that suits them, and say so before the buyer pays.

Using gift cards well in the shop

Gift cards sell best when they are easy to find: a link in the main menu or footer, a mention on product pages for gift-type items, and a seasonal prompt before busy gift periods. The guide to seasonal planning for online stores helps with timing.

Keep gift cards out of discount mechanics unless you intend it. A promotion that gives a bonus card with a purchase changes your margins and should be set up as carefully as any other offer; discounts and promotions without hurting margin covers that. Also look at what your analytics records, as described in the ecommerce analytics setup checklist. If you want gift cards built into a new or existing shop, see our ecommerce solutions.

Related guides

• Ecommerce solutions
• Wishlists and Save for Later for Online Stores
• Why Shoppers Abandon Checkout and What to Fix
• Product photography for online stores basics
• Upselling and cross selling for online stores
• Ecommerce checkout optimisation

Questions and answers

How does an online gift card work?

The buyer pays for a card with a unique code and a starting value. The recipient enters the code at checkout, the system subtracts the amount used and keeps any balance. The code is delivered by email or post.

Should gift cards expire?

That depends on where you sell. Some places limit or prohibit expiry dates or set minimum periods. Check the rules for each market you serve, and state the terms clearly before purchase.

Can a gift card be used with a discount code?

It is your decision. Many stores allow both, with the discount applied first and the gift card paying the remainder. Label the checkout field clearly so customers know where to enter each one.

How do I stop gift card fraud?

Use long random codes, limit repeated attempts to redeem or check balances, review large or unusual orders, and rely on your payment provider's fraud tools. Keep a log of every code use.

Are gift card sales counted as income straight away?

Often not, because the goods have not yet been supplied, but treatment varies by country. Ask your accountant how to record sales, unspent balances and tax.