Stores make money on gift cards in four main ways: they keep the value of cards that never get redeemed, they earn interest on the cash sitting between purchase and use, they capture extra spending when customers pay over the card’s value at checkout, and they collect commissions when they sell gift cards issued by other brands. The U.S. gift card market runs over $200 billion in annual transactions, and the sale itself is only the start of the revenue story.
Breakage: The Balances Nobody Spends
Every retailer tracks the gap between the total value of gift cards sold and the amount customers actually redeem. The industry calls that gap breakage, and it is close to pure profit: the store collected cash but never had to hand over a product. Public company filings put typical breakage at roughly 2% to 4% of total gift card sales.
The scale matters. Starbucks alone has reported roughly $1.77 billion in outstanding unredeemed gift card balances and recognized nearly $200 million in breakage revenue in a single year. A smaller retailer selling $5 million in gift cards annually might see $100,000 to $200,000 eventually convert from a liability on the balance sheet into revenue, with no inventory cost attached.
A common misconception is that stores wait for cards to expire before booking this revenue. Under the current accounting standard (ASC 606), most companies do not wait. They estimate the share of card value that will never be redeemed and then recognize that revenue gradually, in proportion to actual redemptions across their gift card portfolio. If a retailer estimates 3% breakage, it books a small piece of that revenue every time any customer uses any card. The money flows in steadily rather than in a lump sum years later.
The Float on Your Money
The gap between when someone buys a card and when the recipient uses it creates what finance people call the float. During that window, the retailer holds the cash and can put it to work. It is functionally an interest-free loan from the consumer to the company.
Corporate treasury departments park this cash in money market funds, Treasury bills, and other short-term instruments. As of late 2025, major money market funds were returning roughly 3.6% to 3.9% annually. For a large retailer sitting on hundreds of millions in unredeemed balances, that translates to millions of dollars in passive income each year, earned before any product ships.
Smaller retailers benefit too. Even a local restaurant chain holding $500,000 in outstanding gift cards earns meaningful interest relative to its operating costs. The float also smooths cash flow: holiday sales dump a surge of cash into the business in November and December, while redemptions trickle in for months afterward.
Spending Beyond the Card’s Value
Gift cards reliably drive customers to spend more than the card is worth, a pattern retailers call uplift. A $50 card feels like found money, so picking out an $85 item and paying $35 out of pocket does not sting the way spending $85 in cash would. The card lowers the mental barrier to a purchase the customer might otherwise skip.
A First Data study found the average consumer spent $59 more than the original value of their gift card, with even higher uplift at supermarkets. That overage comes out of the customer’s wallet at full price, so the retailer earns its normal margin on top of the card sale.
Cards also work as customer acquisition tools. Someone who receives a card for a store they have never visited now has a reason to walk in. First visits often turn into repeat customers, loyalty program signups, or brand discoveries. For the cost of processing the original card sale, the retailer can gain a long-term customer whose lifetime value dwarfs the card’s face amount.
Commissions on Other Brands’ Cards
Walk into any grocery store or pharmacy and you will see a rack of gift cards for restaurants, streaming services, and other retailers. The grocery store earns a commission on every one of those third-party cards it sells. Industry estimates put the commission at roughly 4% to 10% of the card’s face value, depending on the brand and the volume the retailer moves.
Selling a $100 card for a popular restaurant chain might net the grocer $4 to $10. The economics are attractive because the rack takes almost no floor space, needs no refrigeration, has no spoilage, and requires little labor beyond the initial setup. A single endcap can generate thousands of dollars in commission income each month. For the brand on the card, the arrangement buys distribution into thousands of stores it would never staff or build itself.
Federal Rules That Cap the Breakage Playbook
The Credit CARD Act of 2009 added Section 915 to the Electronic Fund Transfer Act, which sets two limits on how far retailers can push gift card profits.
Gift cards cannot expire sooner than five years from the date they were issued or the date funds were last loaded. Before this law, some retailers set expiration dates as short as one year, reclaiming unused balances on a predictable schedule.
Dormancy fees, inactivity charges, and service fees are banned unless a card has seen zero activity for at least 12 consecutive months, and even then retailers can charge only one such fee per month. Before these limits, monthly inactivity fees could drain a forgotten card within a year or two. Most major retailers dropped these fees entirely rather than manage the compliance burden.
State Rules That Take a Cut
Breakage does not always stay with the retailer. Most states have unclaimed property laws requiring businesses to turn over dormant gift card balances to the state treasury after a set period of inactivity, typically two to seven years. Every dollar a state claims is a dollar the retailer cannot book as profit. Some companies issue cards through subsidiaries in states with more favorable escheatment rules, and several states have tightened their laws in recent years in response.
About a dozen states also require retailers to give cash back when a card balance drops below a threshold, cutting into the small residual balances that would otherwise sit unused. California’s threshold is $10 (rising to $15 in April 2026). Colorado, Maine, New Jersey, Oregon, and Washington use $5. Connecticut is $3, and Rhode Island and Vermont require cash back once the balance falls below $1. If you live in one of these states, ask at the register when your remaining balance is small; the store is required to comply if you ask, but most cashiers will not volunteer it.
What Happens If the Store Fails
The profit model has one edge worth knowing as a cardholder. When a retailer files for bankruptcy, courts have generally treated unredeemed gift cards as general unsecured claims, placing cardholders near the bottom of the recovery list. In a Chapter 11 reorganization, the retailer sometimes keeps honoring cards while it restructures. In a liquidation, the court usually sets a short deadline for using outstanding cards, after which they become worthless. Montana is an outlier: state law treats a gift card’s value as trust property belonging to the cardholder rather than an asset of the bankrupt company. Most states offer no comparable protection. If you hear a retailer is in financial trouble, use your cards immediately.