What's the difference between Gift Cards and Store Credit?

Gift Cards

What they are:

• Physical or digital payment instruments with a unique code
• Can be purchased by customers or issued by merchants
• Have an initial value and remaining balance
• Can be assigned to a specific customer or used by anyone with the code
• Can have expiration dates
• Can be enabled/disabled (but not re-enabled once disabled)
• Does not require new customer accounts (can use legacy customer accounts)

Pros:

• Sellable as products - Can be sold to customers as gift products
• Transferable - Code can be shared with anyone (gift-giving)
• Flexible issuance - Can be created manually, purchased, or issued as refunds
• Customer visibility - Customers can see the gift card code and check balance from their purchase/gifting email
• Apple Wallet integration - Can be added to Apple Wallet
• Marketing tool - Great for promotions and gift-giving occasions

Cons:

• Code management - Requires unique code generation and security
• Cannot be deleted - Only disabled
• Accounting complexity - Creates liability on balance sheet until redeemed

Store Credits

What they are:

• Account-based balance system tied to a specific customer or company location
• Automatically created when needed
• Can have expiration dates on individual credit transactions
• Requires new customer accounts authentication

Pros:

• Account-based - Tied directly to customer account, no codes to manage
• Automatic handling - System automatically manages debits, reverts, and expirations
• Refund flexibility - Can be issued as refunds for orders/cancellations
• Transaction tracking - Detailed transaction history with events (ORDER_PAYMENT, ORDER_REFUND, ADJUSTMENT, etc.)
• FIFO expiration - Automatically spends soonest-expiring credits first
• Multi-currency support - Customer can have multiple accounts in different currencies
• Automatic reversals - Credits automatically revert if orders are cancelled or payments fail

Cons:

• Not transferable - Locked to specific customer account
• Cannot be sold - Not a product, only issued by merchant
• Requires authentication - Only redeemable when customer is logged in with new customer accounts
• Account limits - Has maximum balance limits per currency
• Less visible - Customers may not be as aware of store credit balance

Accounting Differences

Gift Cards:

1. Liability Recognition - When sold, creates a liability on the balance sheet (deferred revenue)
2. Revenue Recognition - Revenue is only recognized when the gift card is redeemed for actual purchases
3. Breakage - Unredeemed gift cards may eventually be recognized as revenue (gift card breakage) based on local regulations
4. Sales tracking - Gift card sales are separate from product sales in accounting
5. Tax implications - Gift card purchases typically aren't taxable; taxes apply when redeemed

Store Credits:

1. No initial sale - Store credits are typically issued as refunds or adjustments, not sold
2. Expense/Adjustment - Often treated as a marketing expense, customer service adjustment, or refund liability
3. No breakage revenue - Expired credits reduce liability but aren't typically recognized as revenue
4. Simpler tracking - Usually part of customer account management, not a separate product line
5. Refund accounting - When issued as refund, reduces revenue from original sale

When to Use Gift Cards

1. Gift-giving programs - When you want customers to buy gifts for others
2. Retail/e-commerce stores - Where gift cards are a product offering
3. Promotional campaigns - "Buy $100, get $20 gift card"
4. Partner programs - When working with third-party gift card distributors
5. Physical locations - When you need physical gift cards at POS
6. Transferability matters - When you want the value to be shareable
7. Revenue generation - When gift cards themselves are a revenue stream

When to Use Store Credits

1. Customer service - Compensating for service issues or downtime
2. Refund alternative - When you want to keep money in your ecosystem
3. Loyalty programs - Rewarding repeat customers
4. Account-specific benefits - When credits should only be used by specific customer
5. Order cancellations - Automatic handling of cancelled order refunds
6. B2B scenarios - For company locations with purchasing accounts
7. Simplified management - When you don't want to manage codes and transfers
8. Expiration control - When you need fine-grained expiration management per transaction