gift cards

Christmas is the gifting giving season. No doubt that the trend of giving gift card is flouishing. There are a lot of interesting arguments why gift may be better than gift card and why gift card may be better than cash. It is also clear that from pure monetary point of view, cash is better than gift card and in many cases, gift card is better than gift. Since gift card is popular today, it is not too hard to imagine that bank or other financial institution will jump into the bandwagon sooner or later. Unlike Walmart selling Walmart gift card, which is only useful in Walnart shopping, why not Bank X sells BankX cash card. A BankX cash card will have some cash balance that can be spent anywhere?

There are several reasons why so far cash card is not as popular as a ordinary gift card. One obvious reason is that those banks have no incentive to sell this cash card. If the bank does not charge any fee, why the bank has to spend the transaction cost to administer this product? If the bank charges a fee, will customers will to buy the $x valued cash card for $x+$fee? and what will the optimum fee to make the card competitive in the gift card market?

Bank may add free cash card service to its account holders. But I doubt how many new customers can the bank attract by adding this service.

Because of the popularity of gift cards, and because of different people places different value on it, the auction and swap market for gift card is also flouishing. Surfing the web shows there are a nunber of websites doing this business. Of course, the price pay for the gift card must not be greater than the value of the card in the auction. The difference is the inflexibility premium (assuming there is no default risk).

I checked one of the gift card swap website: http://www.cardavenue.com

As of Dec 27th, there are about 450 card auctions. I complied the value, the latest auction price and the days of auction remaining for the whole list. Average card value is $157.8, average latest auction price is $110.96, and the average remaining days of auction is 4.268 days. The price value differential is $46.92, or almost 30% of the card value. No doubt that the price value differential will be tigther in the next 4+days, but most likely that the differential will remain strictly positive.

Can the bank based on this premium to market their cash card with the fee equals to or a little lower than this inflexibility premium that are beneficial to both the banks and the gift card shoppers? thoughts?