Gift card breakage is the share of sold gift card value that is never redeemed. The issuer keeps that money, not the reseller or the platform that sold the card, and that one fact shapes incentives across the whole trade.
Breakage sounds like a technicality until you hold budget on either side of it. For an issuer it is quiet revenue. For anyone running a rewards programme, it is spend that bought nothing.
Who keeps the unredeemed value
The party that holds the redemption liability keeps the breakage. For closed-loop cards, a brand’s own store credit, that is the issuing brand; for open-loop cards it is the issuing bank or programme manager. They took cash at sale and never had to deliver goods against it.
Resellers and distributors see none of this. Their spread was earned when the code was sold and delivered; whether the end customer redeems it changes nothing on their books. The common assumption that resellers profit from forgotten cards has it backwards: breakage lives upstream, with whoever owes the value.
What a typical breakage rate looks like
Published figures vary more than you might expect, partly because “unredeemed” can be measured at one year or at forever. According to Mercator Advisory Group, roughly 3 percent of gift card dollars go unredeemed, while broader industry estimates commonly land between 5 and 15 percent of loaded value, depending on card type and market. Older estimates ran higher; the long-term direction is down.
Two things drive the decline. Consumer protection rules in many markets restricted expiry dates and dormancy fees, which once manufactured breakage on their own. And delivery went digital, which changed behaviour more than any regulation did.
Why digital delivery pushes breakage down
Plastic cards die in drawers. A digital code sits in an inbox or a wallet app, searchable months later, and the sender can remind the holder that it exists. Digital cards are also bought closer to the moment of use, often minutes before redemption, so there is less time in which to forget them.
Reminder emails, balance notifications and wallet passes are all unglamorous, and each one moves redemption. Issuers accept the trade willingly: a little breakage revenue lost, in exchange for a redemption visit, which is when the customer walks in and tends to spend beyond the card’s balance.
What breakage means for a rewards programme
For a rewards programme, breakage is not revenue; it is waste. Every unredeemed reward is money spent on a recipient who felt nothing, which defeats the reason the budget existed. If a fifth of rewards go unused, the true price of each delivered thank-you is a quarter higher than the invoice suggests.
Redemption responds to two levers. The first is relevance: recipients redeem brands they already use, which is why gaming cards work well for younger audiences and one-size-fits-all cards underperform. The second is delivery quality: the right channel, working links, and a card that matches the recipient’s country. Cross-border programmes lose more redemption to region and currency mismatches than to forgetfulness.
How breakage is accounted for
Modern accounting standards generally let issuers recognise expected breakage as revenue proportionally, in step with actual redemptions, instead of waiting years for balances to lapse. The estimate has to be grounded in redemption history, and unclaimed-property rules in some jurisdictions claim part of unredeemed balances for the state, which trims the issuer’s share. The details differ by jurisdiction, so treat this as background rather than guidance for your own books.
Frequently asked questions
What is a typical gift card breakage rate?
There is no single agreed figure. According to Mercator Advisory Group, around 3 percent of gift card dollars go unredeemed, while wider industry estimates range up to the low teens for some card types and markets. Digital delivery, reminders and mobile wallets keep pushing rates down. For planning, assume mid single digits and measure your own programme rather than borrowing an industry average.
Who profits from unredeemed gift cards?
The issuer of the card, or the issuing bank for open-loop products. They received cash at sale and never delivered goods against it. Distributors and resellers earn nothing from breakage: their spread is fixed at the point of sale. In some jurisdictions, unclaimed-property law hands part of unredeemed balances to the state, which reduces the issuer’s share.
How do you reduce breakage in a rewards programme?
Let recipients choose from brands they use, deliver digitally to a channel they read, and remind them before the reward fades from memory. Match the card’s region and currency to the recipient. Track redemption as a core programme metric; if nobody measures it, unredeemed budget disappears without a trace. Programmes that move from generic cards to chosen rewards tend to see redemption climb.
How does digital delivery change gift card breakage?
It pushes breakage down. A digital code sits in an inbox or wallet app where it can be found months later, reminders can be sent, and digital cards are often bought minutes before redemption, leaving little time to forget them. Plastic cards forgotten in drawers were a large source of unredeemed value. Issuers accept the lost breakage revenue in exchange for a redemption visit, when customers tend to spend beyond the card’s balance.
Does gift card expiry still cause breakage?
Less than it used to. Expiry dates and dormancy fees once manufactured breakage on their own, and consumer protection rules in many markets have since restricted both, which is one reason long-term breakage rates have declined. Expiry has not vanished, though: terms remain per issuer and per market, and in some jurisdictions unclaimed-property law hands part of unredeemed balances to the state rather than the issuer.