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There is a significant expense to setting up a gift card system for a retailer. The cost of printing and/or personalizing cards, upgrading card terminals to handle the transactions, and setting up a central computer system to manage the accounts are the key, costly components. Retailers absorb these costs with the profits produced by new sales made by the end-user of the card. They rarely charge the customer fees for gift cards. In many cases the recipient may use the gift card towards a major purchase. Understandably, some retailers refer to "gift cards" as "lift cards" since they generally raise sales.

On the other hand, banks do not have the profits from the merchandise sales to off-set their gift card costs. As a result, the costs are mostly absorbed by the consumer.

For example Bank of America, the largest issuer of VISA Gift Cards, charges a $5.95 to $11.95 to issue the card. The fee is based on the prepaid denomination selected for card, from $25 to $600, and if the order for the card was made online or over the phone. If you purchase the card from BofA's Web site or over the phone using a credit card, most banks will consider this a cash advance. As a result, you will be hit with a cash advance fee (up to 5%, subject to a minimum fee of $5-$20), a special interest rate (usually around 20%), and there will be no grace period or interest-free period. (BofA says it waives the cash advance fee if purchasers use a BofA-issued credit card.) Therefore, to buy a $100 VISA Gift card could conservatively cost you nearly $14. ($5.95 issuance fee + $5.00 cash advance fee + $3.00 interest charges, if paid within 60 days) If you need the card in a hurry be prepared to pay additional fees for rush processing and express delivery.

The recipients or user of the card may also face additional fees. Bank of America deducts a monthly maintenance fee of $2.50 from the card which is waived for the first six months after the card's issue date. If you do not use the full amount on the card within the one year from the date of issue you can have the card re-issued or request a check to be issued for the remaining balance. The fee for reissuance is $7.50 and fee to have a manual check issued is $15.00. If the recipient wants to use the gift card to withdraw cash from an ATM or at a banking center, BofA will charge $1.50 per transaction. Gift card ATM withdrawals are also subject to extra, non-customer fees charged at most non-BofA ATMs.

While bank-issued gift cards offer the ultimate in convenience compared to the limited use of retailer-issued gift card, there are other drawbacks. For example, using a bank-issued gift card at a restaurant or a gas pump can create problems.

The card terminal in the “pay at the pump” stations automatically checks with BofA to see if the gift card has enough money left to pay for an “average purchase of gas”. If your gift card does not have enough money to pay for an average amount, your attempt to pay at the pump will be declined. The average gas purchase amount changes just as retail gas prices change. BofA says this check is in place to prevent people from spending more than the balance left on the gift card. BofA recommends using the card to prepay the cashier at the counter the exact dollar amount of gas you want to purchase.

Many restaurants have programmed their card terminals to account for the food server’s tip in addition to the total amount of the food bill. The card terminals are typically programmed by restaurants to “up charge” the tip amount (usually between 15% - 20%) based on a percentage of the total food bill. BofA says this “up charge” is to ensure that should you put the tip on your gift card you have the funds available to cover the total of your food bill plus tip. However, you will not be charged this “up charge” should you choose to pay a different tip amount or pay tip in cash ­ your gift card balance will reflect the total that you sign on the restaurant receipt. Every restaurant programs their own “up charge” amount. In addition to what may be programmed by the restaurant, many food servers unknowingly may “up charge” the food bill again. Therefore, the final attempted amount for authorization (food bill including tip) can sometimes easily exceed your gift card balance available, in those instances when your food bill is about 75% to 90% of your gift card balance. On occasions when your food bill is 50% or less of your gift card balance, you will mostly likely not have a problem getting your restaurant check and tip amount authorized. BofA recommends to avoid the “up charge” authorization problems at restaurants and use your gift card only for purchases at retail stores.

Despite the fees and usage problems with bank-issued gift cards, they are nevertheless, cool! BofA offers tons of neat card designs and they personalize each card. Most retailers offer a few bland designs and no personalization.

The gift card explosion continues this holiday season spreading from the family farm to the shopping malls.

Tennessee-based Tractor Supply Company has launched a gift card in more than 400 stores in 30 states. Four pre-denominated cards ($10, $25, $50 and $100), and two non-denominated (any amount $5-$5,000) gift cards are available for purchase. Merchandise return/exchange cards are also available to expedite the refund process for customers without receipts. For more information: http://www.mytscstore.com.

American Express unveiled the American Express Gift Card in October. It features a card embossed with the recipient's name and good at all retailers that accept the AmEx cards. The new card is available in amounts from $25 to $500 and can be purchased through the American Express Web site. For more information visit: http://www.americanexpress.com/gift.

Chicago-based General Growth Properties has launched a VISA Gift card pilot with Bank of America in four its 168 shopping malls. The nation's second largest owner, developer and manager of regional shopping malls says its expects to roll-out the gift card program to all of its malls next year. The participating General Growth malls in the pilot include: North Point Mall, Atlanta; Spring Hill Mall, Chicago; Florence Mall in Kentucky; and Bellis Fair Mall in Bellingham, WA. General Growth Properties has malls in 41 states.

Simon Property Group is expanding its "VISA Gift Card" program to 43 shopping malls with a complete rollout scheduled to all remaining Simon malls next year. During the 12-month pilot program conducted in four Simon malls last year, the company says it experienced a sales increase of more than 60% compared to regular gift certificate sales during the prior 12 months. Simon Property currently owns or has an interest in 249 properties in 36 states.

Wisconsin-based Marcus Theatres launched an "Entertainment Gift Card" for consumers in Wisconsin, Illinois, Minnesota and Ohio. The stored-value gift cards are available in any amount from $5 to $500 dollars and can be reloaded with additional value. Marcus Theatres currently owns or operates 492 movie screens. For more information visit: www.marcustheatres.com.

Finally, a recent survey shows that 37% of U.S. consumers have purchased or received a gift card in the past 12 months. Americans purchased an average of 4.6 cards per person over the past year, compared with 4.1 cards in 2001. According to data collected by TNS Intersearch for First Data's ValueLink division, the average value of purchased cards rose to $50 per card versus $44 the previous year, while the average value of gift cards received increased from $51 in 2001 to $60 in 2002. Twelve percent of those surveyed indicated that they have purchased electronic cards for their own use in the past year. Other key research findings include: 79% are aware of gift cards; 61% said they usually spend more than the initial value of their gift card; 63% said they use up the value of their gift cards within one month; 28% make two or more visits to a store to use up the card value; and 21% of consumers said they are likely to purchase a gift card from a merchants' Web site vs. 11% in 2001.