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 public forums such as Yahoo! Answers and Quora are a great source to hear what consumers are saying.
One of the most common problems that we see is that people who receive one of these cards don’t know how to use them to make online purchases.
There is a misconception amongst many people that all open-loop gift cards flat out cannot be used for online shopping. It is understandable why consumers feel this way. There are several factors that can impede someone from successfully using their card online. And while some issuing banks and sellers of prepaid card may not make it evident on how to use these products for ecommerce, they all work for most online transactions.
Based on internal data, here are our findings of the reasons why an online transaction was declined using a network branded gift card:
What do these mean?
Insufficient Funds: 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. If I have a $50 card and try to buy something for $75, of course it’s going to decline. BUT, people don’t think that way when it comes to a bank issued gift cards. They assume that they can enter in their card and the shopping cart will then ask for a second form of payment (this typically referred to as a Split Tender transaction). 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.
Card Not Registered: 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.
Merchant block: 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.
Issuer block: 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.
Other: Other reasons for decline include the consumers entering in the wrong security code, expiration date, or the merchant being outside of the U.S. Due to recent legislative changes, most network branded gift cards sold within the United States are restricted from being used at merchants outside of the U.S. which includes online merchants whose transactions settle abroad.