Are gift cards the right method for your shop local initiative?

Local governments and economic development organizations across the country are investing more in shop local campaigns to support small businesses. But as these programs grow, so does the question of how best to incentivize participation. 

One of the common tools used is community gift cards: consumers and employers buy community gift cards that can be used at participating local merchants in your community. Virtual delivery makes receiving the gift cards simple, and the community approach ensures the gift card is used locally while still allowing the flexibility of being used across different merchants.

However, what is lesser known are the host of challenges that can frustrate both merchants and consumers and limit the program's impact. In this article, we'll review some of the challenges that come with gift cards so you can be equipped with the best information while making the right decision for your community.

The challenge with gift cards

1. Compatibility issues

To use a virtual gift card at a merchant, it requires that the merchant's point-of-sale (POS) system supports card-not-present (CNP) transactions. However, many small businesses' POS system does not support this. As a quick test, we visited a random selection of 10 local merchants and only 2 were able to accept it. Furthermore, any local businesses that are cash-only are immediately excluded. This means many local establishments are automatically left out of your shop local program, undermining your program's inclusivity and reach.

2. Cumbersome to use

Assuming you found a business that accepts CNP transactions, you now have to ask the staff to manually key in the card’s 16 digits, expiration dates, CVC code, and zip code. That is a lot of numbers to type while you are standing at the check-out counter, leading to errors and stressful experiences for both the staff and the shopper. 

3. Remaining balances = headaches

Gift cards can only be charged up to their exact remaining balance. That means customers need to know the precise amount left on the card, and tell the staff to charge only up to that amount and put the rest on a different payment method. If there’s any mistake, the payment will fail, and the staff will have to manually enter everything all over again—causing delays and confusion.

4. Limited merchant enrollment

Businesses have to opt in to become part of the gift card’s network. This puts the burden on you, the program administrators, to pound the pavement and enroll businesses. Furthermore, for all the above reasons, many small businesses simply don’t join the program to avoid the operational burden. This limits the options where shoppers can use their gift card and lowers the program’s perceived value.

5. Fees and hidden costs

Gift cards come with a host of fees and hidden costs that you should be aware of:

• Purchase fee: a fee per gift card purchase, in the range of a few dollars per card PLUS 5% of the card value, that either you will need to cover or pass through to the buyers. This adds up quickly and every dollar a consumer is paying in fees is a dollar they are not spending in the local community.

• Higher transaction fees: merchants are charged higher interchange fees when they process a card-not-present transaction. That means every time a shopper uses the gift card to make a purchase, the merchant is also taking a hit compared to other regular cards.

• Inactivity fees: after one year, gift cards start charging hefty inactivity fees that significantly reduce the value of the card. In fact, Americans collectively lose an estimated $23 to $27 billion worth of unused value on gift cards each year. For you, this means the money that your shoppers put on the gift cards are lost and wasted, instead of being spent in your community, the opposite of your intent.

A reinvented solution for your shop local initiative: Open Rewards

Launched in 2022, Open Rewards by Bludot is a brand new approach to shop local initiatives. It turns the entire local economy into a flexible, rewards-based experience, empowers your merchants on a collective mobile platform, empowers your shoppers to earn rewards on every local purchase, and empowers you, the Economic Development team, to boost your local economy with adaptability and precision.

Here are the highlights of why communities across the country such as El Paso, TX and Arlington, VA have all adopted the Open Rewards program:

• Completely transparent to businesses. Shoppers simply shop like they normally do and earn rewards through the Open Rewards app. Businesses don't have to sign up, learn a new system, configure their POS, train their staff, or do anything differently at all.

• No more pounding the pavement to enroll businesses. Every business can be instantly enrolled by you as the program administrator. Cash-only businesses are supported too, making the program truly inclusive.

• Shoppers earn rewards every time they shop at an eligible business in your community

• Shoppers then redeem the rewards they have earned back in your community, guaranteeing that every dollar invested stays local

  
  

Compared to a Buy-one-get-one gift card campaigns where the economic impact is capped at 2X, Open Rewards has delivered over 20X impact consistently. That means for the same amount of investment, you are driving 10 times more revenue and customers to your local businesses.

🎉 One App. Every Business. Maximum Impact.

Vouchers as the gift card replacement

To go one step further, Open Rewards also includes a voucher system—a powerful alternative to avoid the pitfalls of gift cards. With vouchers, local shoppers and employers still have a way to buy a shop-local voucher, and you can distribute specific dollar amounts to residents or target groups (e.g., program participants, holiday shoppers, tourists or even car buyers).

Advantages of Open Rewards vouchers:

✅ No fees for the shoppers, no fees for the businesses, no interchange fees that takes a cut, and the money never expires

✅ Can be redeemed at any business, even cash-only businesses

✅ No need to track balances or enter exact amounts

✅ No need to manually key in card numbers ✅ No POS requirements at the merchant

✅ Completely transparent to businesses. Shoppers simply shop like they normally do and redeem the vouchers through the Open Rewards app.

Making the right decision for your community

Community gift cards may have once been the only option—but today, economic development organizations have better tools that truly drive the impact back into the community. At Bludot we know the importance of making a difference in your community with limited time and resources, and we will not stop innovating to help our communities get the biggest impact from their investment.

If you want to join the 200+ communities across the country already utilizing Bludot to build a modern, inclusive, seamless shop local initiative that supports your entire business and consumer community, Open Rewards is ready. Schedule some time to see what Open Rewards would look like in your community.