Gift cards have become a must-have for small businesses looking to increase sales and attract new clients. Whether you’re a local coffee shop or an online boutique, offering gift cards can drive revenue, improve customer loyalty, and simplify payment processing solutions. But how do gift cards work, and what are the best options for small businesses? Let’s break it down in a simple, conversational way!

How Do Gift Cards Work?

At their core, gift cards act as a prepaid payment method. A customer buys a gift card for a certain amount, and the recipient can use it to purchase products or services from the business. For small businesses, this means immediate revenue and a higher chance of repeat visits.

Gift cards are a great online payment option for small businesses, allowing them to accept preloaded funds without complex payment processing. Whether they are digital or physical, these cards store a balance that customers can use until it’s depleted. Some businesses also allow customers to reload their gift cards for future use, increasing long-term engagement.

What Happens When a Customer Buys a Gift Card?

When a customer buys a gift card, a few key things happen:

The business processes the payment using payment processing solutions like POS systems or online payment gateways.
The customer receives either a digital or physical gift card with a unique code.
The gift card is activated and stored in the business’s system to track remaining balances.
The business benefits from upfront revenue, even if the card isn’t redeemed right away.

When Purchased Online, Customers Simply Need to:

Visit the business’s website or app.
Choose the gift card amount and enter the recipient details.
Make the purchase using a secure online payment for business.
Receive the digital card instantly via email or a downloadable link.

How Do Customers Redeem Gift Cards?

Redeeming gift cards is quick and easy, both in-store and online.

In-store redemption: Customers present their physical or digital gift card at checkout, and the cashier applies the balance.
Online redemption: The customer enters the unique gift card code during checkout, and the system deducts the amount from their total.

Most modern payment processing solutions automatically update the remaining balance, allowing customers to use any leftover funds on future purchases. This convenience encourages repeat business and makes online payment for business seamless.

What Are the Different Types of Gift Cards Available for Small Businesses?

Small businesses typically offer two types of gift cards: closed-loop and open-loop. Each has unique benefits depending on the business’s needs.

What Are Closed-Loop Gift Cards?

Closed-loop gift cards are redeemable only at the issuing business. If a customer buys a gift card from your store, it can only be used at your store. These are the most common type for small businesses because they keep customers coming back.

Closed-loop gift cards offer the following perks:

Encourage customer loyalty – Gift card holders are likely to return and spend more than the card’s value.
Zero processing fees – Since funds stay within your business, you avoid third-party transaction fees.
Easy to manage – Works seamlessly with most payment processing solutions and POS systems.
Boost sales – Studies show that gift card users often spend more than the card’s balance.

What Are Open-Loop Gift Cards?

Unlike closed-loop cards, open-loop gift cards work anywhere that accepts major credit cards (like Visa or Mastercard). These are usually issued by banks or third-party services and are more flexible but come with additional fees.

Pros of open-loop gift cards:

It can be used at multiple locations.
Attracts customers who prefer flexible spending.
Ideal for businesses partnering with larger networks.

Cons of open-loop gift cards:

Higher processing fees.
More complex integration with payment processing solutions.
Less brand loyalty since funds aren’t restricted to one business.

Why Small Businesses Should Offer Gift Cards

If you’re a small business owner looking for financial advice, adding gift cards to your offerings can be a game-changer. Here’s why:

Instant cash flow – Get paid upfront, even if the gift card is redeemed later.
Encourage new customers – Many people buy gift cards for friends and family, introducing your brand to new shoppers.
Seamless integration with payment systems – Most online payment-for-business solutions support gift cards.
Boost seasonal sales – Holidays and special occasions drive higher gift card purchases.

How to Set Up Gift Cards for Your Business

Setting up gift cards is easier than you think. Follow these steps:

Choose a provider – Select a POS system or online payment solution that supports gift cards.
Decide on physical or digital cards – Consider what works best for your customers.
Set up branding – Customize the design to match your business.
Promote your gift cards – Advertise them in-store, on your website, and on social media.
Track balances and redemptions – Use a reliable system to monitor card usage.

Conclusion

Gift cards are an easy yet powerful tool for small businesses. They provide immediate revenue, encourage customer loyalty, and integrate seamlessly with modern payment processing solutions. Whether you choose closed-loop or open-loop gift cards, implementing them can improve your online payment for your business strategy.