Gift Cards Breakage: What Happens to Unused Balances?

Gift cards are often the perfect gifting option—provided recipients remember to use them.

According to Capital One Shopping, the global gift card market was valued at $984.3 billion in 2023 and is projected to grow to $3.09 trillion by 2030. On average, gift cards given to others amount to $47.91. However, a significant number of Americans—43 % of adults—have unused gift cards, with the total value of these unspent funds reaching approximately $23 billion.

Moreover, fraud involving gift cards is a growing concern; 1 in 4 individuals who reported losing money to fraud to the Federal Trade Commission (FTC) indicated that it involved giving out numbers from the back of a gift card.

Moreover, many gift cards—worth tens of billions of dollars—are forgotten or unused. When this happens, the card's fate becomes more complex, with expiration dates and inactivity fees that differ depending on the state.

Here's what you need to know about the gift cards breakage.

What is Breakage?

Breakage refers to the unclaimed balance on gift cards or loyalty program points that customers fail to redeem.

According to an estimate from the Mercator Advisory Group, approximately 3% of gift card dollars go unredeemed. In 2019, consumers loaded around $98.6 billion onto gift cards, leaving nearly $3 billion unused, as reported by C. Sue Brown, director of the group’s prepaid advisory service.

While the concept may seem straightforward, it holds significant financial and marketing implications.

Why Does Breakage Happen?

Breakage occurs due to several reasons:

• Customers forget about or lose their gift cards.

• Difficulty finding desirable items to purchase.

• Complex redemption processes in loyalty programs.

• Perceived low value of rewards in loyalty programs.

Why Does Breakage Matter?

Breakage significantly impacts a company's bottom line. While it boosts profits by being recognized as revenue, it can also affect a brand’s reputation and customer loyalty.

Breakage Revenue and Recognition

Companies can recognize breakage as revenue, following financial regulations that estimate and account for unused gift cards over time. This applies to loyalty breakage as well. However, unused gift cards may fall under escheat laws in the U.S., transferring their value to the state as unclaimed property.

Customer Loyalty

High breakage rates can discourage consumers from using loyalty programs or buying gift cards. Businesses must balance revenue recognition with maintaining customer satisfaction.

Some Consumers Get Money Back

Each year, companies calculate "breakage," the portion of gift card balances unlikely to be redeemed. For some, like Starbucks, it’s a significant revenue stream, with $212 million reported in breakage revenue in 2022.

In at least 19 states, including Delaware, unspent gift card funds must be sent to state unclaimed property programs. These programs return money to consumers or use it for public services, arguing that unredeemed balances shouldn’t benefit companies.

All states and the District of Columbia have unclaimed property programs. Digital gift cards, which often include recipient names, make it easier to trace unclaimed balances. Consumers can search for unclaimed property, including gift card funds, at MissingMoney.com.

Buyer Beware

Consumers should track their gift cards and remain cautious about scams. The FTC reports that in 2022, nearly 65,000 people lost over $228 million to gift card scams.

Scammers often impersonate legitimate businesses, charities, or government agencies, pressuring victims to purchase gift cards and share card details. During the 2022 holiday season, Amazon warned of scammers posing as customer service representatives and sending fake emails that requested login credentials or payment information.

What to Do If You’re Scammed?

1. Report It – Contact the gift card issuer (e.g., Amazon, Apple, Target).

2. Request Funds Back – Some companies freeze fraudulent transactions. If the card hasn’t been used, they may recover your balance.

Act quickly to minimize potential losses.

The Fate of Unused Gift Card Funds

The expiration law of gift cards varies depending on the legal frameworks of different brands and states. Here are some potential outcomes for these unredeemed funds.

1. Breakage Calculation

Over time, unused gift cards are accounted for as "breakage," representing the estimated funds that will never be redeemed. Companies often recognize this as revenue, contributing to their profits.

2. State Regulations

In many states, unclaimed gift card funds are subject to escheat laws. Retailers must transfer the unredeemed value to state unclaimed property programs instead of keeping it as profit.

3. Use of Unclaimed Funds:

States utilize these funds for public services if consumers still need to claim them. Programs like MissingMoney.com help individuals recover unclaimed funds, including unused gift card balances.

The Bottom Line

Despite being a popular and easy way to give gifts, gift cards have a hidden complexity revealed by their unredeemed value. Breakage significantly impacts businesses, consumers, and even state programs, with billions of dollars wasted annually.

Although breakage is profitable for businesses, balancing profit and customer satisfaction is crucial. Customers can maximize their gift cards and prevent money from being wasted by employing strategies like unclaimed property programs, monitoring unused balances, and remaining alert for scams.