Gift Card
A prepaid stored-value card issued by a specific retailer or payment network that can be used to make purchases up to the loaded value, functioning as an alternative payment method to cash or credit cards.
Gift cards are prepaid payment instruments that store a specific monetary value for use at designated merchants or merchant groups. Closed-loop gift cards are issued by specific retailers and can only be used at that retailer's locations (such as a Starbucks card usable only at Starbucks). Open-loop gift cards carry payment network branding (Visa, Mastercard, American Express) and can be used anywhere those networks are accepted, functioning similarly to debit cards but drawing from a prepaid balance rather than a bank account.
From a merchant perspective, gift cards serve multiple business purposes including generating immediate cash flow when sold (cash received before goods or services are provided), increasing customer loyalty and repeat visits as cardholders must return to redeem value, driving incremental purchases as customers often spend more than the card value, reducing fraud risk compared to credit card transactions, and creating marketing opportunities through branded physical or digital cards.
For merchants implementing gift card programs, considerations include choosing between closed-loop programs (full control over terms but limited to your locations) or open-loop programs (wider acceptance but higher processing costs), compliance with state laws regarding expiration dates and dormancy fees, accounting for breakage (unredeemed card value that becomes revenue), integration with existing point-of-sale and accounting systems, and fraud prevention as gift cards are frequent targets for theft and fraudulent use. Processing costs for accepting gift cards vary—closed-loop cards issued by the merchant typically involve only program management costs, while open-loop network-branded gift cards incur interchange fees similar to debit cards but usually at lower rates than credit cards.
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3D Secure
An authentication protocol for online card transactions that adds an additional verification layer between the cardholder and issuing bank, shifting fraud liability from merchants to card issuers when properly implemented.
ACH Payment
Automated Clearing House payment is an electronic bank-to-bank payment method that transfers funds directly between bank accounts through the ACH network, typically used for direct deposits, bill payments, and recurring transactions.
Acquirer
A financial institution that processes credit card payments on behalf of merchants, maintains merchant accounts, and facilitates the settlement of funds from card-issuing banks to merchant bank accounts.
Address Verification Service (AVS)
A fraud prevention tool that compares the numeric portions of a billing address provided during a transaction against the address registered with the card-issuing bank, returning match result codes to help merchants assess transaction risk.
Aggregator
A payment service provider that enables multiple merchants to process card transactions under a single master merchant account rather than each merchant having their own dedicated merchant account, common with services like Square, Stripe, and PayPal.