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Selling Methods Explained

Why is my gift card payout amount different when I redeem in mail, online, in-store, or in-person?

Have you recently sold a gift card or merchandise credit and are wondering why payout amounts differ by redemption method?

If you have sold an unused gift card or merchandise credit recently you have probably been faced with a choice:  How will I redeem or trade in my gift card and what is the corresponding payout?

Generally, there are several different redemption and payment methods available today for this transaction:

  • In-Mail with payment via check
  • Redeem Online with payment via check
  • In-Person with payment via cash.
  • Buyers may also offer money transfer payment in addition to payment via check.

For the seller of the gift card or merchandise credit the question is:  How quickly do I want my money?

For the buyer of the gift card or merchandise credit, the ability to price the transaction is dependent on:  How much risk am I willing to take that the card will ‘Go Bad’?

Generally, the longer the payout takes to complete, the more money a buyer is willing to risk on a higher price for the transaction.  Each of these methods and the corresponding pros and cons are discussed below.

In-Mail with Payment via Check:

In this transaction, the seller agrees to mail in the physical gift card or merchandise credit to the buyer.   When the buyer receives the card, he will check the balance on the card, then write a check to the seller and mail it back.  Generally, this transaction method yields the highest price for the seller.  Why?

The transaction takes a relatively long time to complete.  Once the check is mailed, it takes several days to be delivered to the seller.  Even then, the seller must physically deposit the check in the bank.  Even after deposit, the check still takes up to 5 days to ‘clear’ or be finally realized into the sellers account.

This process gives the buyer time to turn around and re-sell the gift card using his marketplace.  Many times, if the re-sale pricing is right, the buyer will be able to immediately re-sell the card and ship to his customer.  The end customer can then spend the gift card and there is no further risk to the buyer that the gift card may ‘Go Bad’.

So, the buyer is willing to pay to a higher price for this type of transaction because his risk is minimized based on the sheer amount of time it takes for the post office to deliver the check and the bank to process the check.

If a seller is willing to wait the days or weeks that it takes to complete the transaction, he will yield the highest return with this method.

Redeem Online with Payment via Check:

In this transaction, the seller agrees to transfer the gift card or merchandise credit codes via a secure online portal.   When the buyer receives the card information, he will check the balance on the card, then write a check to the seller and mail it back.  Generally, this transaction method yields a mid-level price for the seller.  Why?

The transaction is similar to the In-Mail transaction.  Compared to the In-Mail transaction, it will take roughly half of the time to complete.  However, this is still a relatively long time.  Once the check is mailed, it takes several days to be delivered to the seller.  Even then, the seller must physically deposit the check in the bank.  Even after deposit, the check still takes up to 5 days to ‘clear’ or be finally realized into the sellers account.

This process gives the buyer time to turn around and re-sell the gift card using his marketplace.  Many times, if the re-sale pricing is right, the buyer will be able to immediately re-sell the card and ship to his customer.  The end customer can then spend the gift card and there is no further risk to the buyer that the gift card may ‘Go Bad’.

So, if that process is the similar, why does the transaction generally yield less for the seller?  There are two reasons:  First, in this transaction the physical gift card does not change hands to the buyer – only the codes on the back.  Therefore, the risk to the buyer is greater that the transaction could ‘Go Bad’.  Second, in the re-sale transaction there are fewer buyers who prefer to buy only gift card codes because they can only be used online.  Therefore, the original buyer will have a more difficult time to re-sell the codes and turn around the transaction quickly.

These two factors combine to increase the risk of the transaction for the original buyer – and therefore the price that he is willing to offer is lower than an In-Mail transaction.

For the seller, this transaction completes quicker than an In-Mail transaction.  The reason is that by sending the codes online, the seller is eliminating the time it takes to mail the physical card to the buyer.  Generally the transaction will take half the time of a similar In-Mail transaction.  This is the trade-off for the seller.  He receives the money quicker but will generally receive less than an In-Mail transaction.

In-Person with Payment via Cash:

In this transaction, the seller and buyer exchange the gift card or merchandise in-store or in-person.  The buyer will check the balance on the card, then pay the seller immediately in cash.  Generally, this transaction method yields the lowest price for the seller.  Why?

The transaction consummates immediately and the payment form cannot be stopped by the buyer after the seller walks out the door.  Therefore, the risk is greatest for the buyer that the gift card may ‘Go Bad’.

So, the buyer is willing to pay to a relatively low price for this type of transaction because his risk is maximized.

If a seller wants or needs the cash today, this is an attractive transaction as the payment is immediate and in a form that is immediately available for other purposes.

Money Transfer:

Another transaction type that may be offered is payment via money transfer instead of check.  A popular money transfer service that is generally utilized is Paypal.

In this transaction, the seller and buyer exchange the gift card or merchandise credit as previously detailed but the payment is made via money transfer.  This payment form is immediate but carries slightly less risk for the buyer.  The reason?

The buyer still has an opportunity to dispute the transaction using the Paypal dispute resolution service should the gift card or merchandise credit ‘Go Bad’.  Even if a dispute is initiated, there is no guarantee that the resolution will be in favor of the buyer.

So, the buyer will generally price this transaction just higher than a cash purchase but well short of the payment via check transactions.  This is because the buyer loses the time needed to turn around and re-sell the gift cards and lower the risk of the transaction.

If a seller wants or needs the cash quicker than payment via check, this is an attractive transaction as the payment is immediate.  However, the form of payment still must be withdrawn from the bank account and therefore is not immediately available for other purposes.

Hopefully, this gives you the information you need to maximize your value when you sell your gift cards or merchandise credits.

Remember the key is timing.  The quicker the transaction completes, generally the less you will receive for your card.