We frequently review consumer questions regarding the usage of Network Branded gift cards (including Visa®, MasterCard®, Discover® and American Express®). We not only listen to our own cardholder’s feedback, but review public forums such as Yahoo! Answers and Quora to hear what consumers are saying as well.
One of the most common problems we see is that people who receive bank-issued gift cards don’t know how to use them to make online purchases. Based on internal data, below are our findings of the reasons why an online transaction gets declined when a network branded gift card is used.
There is a misconception amongst many people that open-loop gift cards cannot be used for online shopping. While it is true that several factors can impede someone from successfully using a card for ecommerce, most gift cards will work online provided the following issues are resolved.
The most common reason an online transaction is declined when using an open-loop prepaid card is that the card does not have enough money on it to cover the purchase. On the surface, this seems like a no-brainer issue, but in-store shopping and online shopping are not the same. If I take a $50 card to the store and try to buy something for $75, I expect the cashier to deduct the $50 and then ask for a second form of payment to cover the balance. (This is typically referred to as a Split Tender transaction) This strategy may work online if you’re paying with the merchant’s gift card (e.g. Amazon will allow you to “apply a gift card balance” to your purchase), but not with a Visa gift card. The issuing bank will simply decline the transaction because the value exceeds the balance. While split tender transactions are commonplace in most physical retail locations, hardly any online merchants are set up to allow for multiple payment types except if it’s their own gift card.
Registration of a prepaid card means that the card recipient provides their name & address which is then tied to the bank issued card as the billing address. Why this is relevant is because many merchants use a security procedure call AVS, or Address Verification System, when accepted credit or debit cards online. An AVS check makes sure that the card number being used matches with the billing address on file with the bank. That way if someone has a stolen credit or debit card, they must also know the address that is tied to that card in order for a transaction to work. Because the sellers of bank issued prepaid cards typically don’t know the address of the card recipient, they use a generic address that is tied to the card. Thus when a cardholder goes to use it online, if they have not registered it ahead of time and the merchant uses AVS verification, the card will decline.
Some merchants may be set up to block a prepaid card from being used. This is common for businesses that sell a service or subscription where there are recurring payments owed. For instance, dating sites, cell phone services, or Internet service providers who charge a monthly fee may not accept a bank issued gift card because it has a limited value and is likely to be declined after 1 or 2 payments have been made. One would think that these businesses would be able to look up the balance of the card beforehand and notify the consumer that can get x months of service by paying with this card, but most are not set up that way.
Certain business types are typically blocked by the bank or seller of the card. This is usually for legal reasons. The most common block is for businesses that are classified as a ‘quasi cash’ merchant meaning they provide a service where a payment can be converted into cash. A network branded gift card cannot be redeemable for cash due to money laundering concerns. PayPal falls under this category and we see questions from card recipients each week asking why they can’t use their gift at PayPal.
Lastly, cards may decline if the consumer enters the wrong security code or expiration date, or the merchant is outside of the United States. Due to recent legislative changes, most network branded gift cards sold within the U.S. are restricted from being used at merchants outside of the U.S. which includes online merchants whose transactions settle abroad.
Those are the issues we hear from our customers the most, but there are other reasons why a Visa gift card doesn’t work. If you run into any other scenarios, let us know. We want to help.