A customer loads $25 onto a coffee shop card and spends it over a month. For that month the merchant holds the customer’s money and owes the customer coffee. A stored value card is a way to hold that promise in plastic or in an app.
What is a stored value card?
A stored value card is a card, code or app balance that holds prepaid money to spend later. U.S. rules sort the common kinds. A store gift card is sold for a set amount and works at one merchant or an affiliated group. A general-use prepaid card works at many unaffiliated merchants, or at ATMs (12 CFR 1005.20). Federal money-laundering rules add a third label. Closed loop prepaid access is money you can use only at a defined merchant or place, such as one retail chain (31 CFR 1010.100).
A Federal Reserve Bank of Philadelphia paper says closed-loop cards are sold by single retailers and work only at that retailer’s locations. It names the Best Buy gift card and the Starbucks card as examples (Philadelphia Fed, 2008). The paper is old, but its split still holds.
How does a stored value card work?
The cycle has four steps: issue, load, redeem and reload. When the $25 is loaded, the merchant owes $25 in goods. Each purchase cuts that debt, and the card is spent when the balance reaches zero. The table lists the common types and the rules that bind each.
| Type | Where it works | Example | Rule to know |
|---|---|---|---|
| Store gift card | One merchant or an affiliated group | A retailer’s gift card | Expiry floor and fee limits in Regulation E |
| General-use prepaid card | Many merchants, plus ATMs | A network-branded gift card | Same Regulation E limits; network rules |
| Loyalty, award or promotional card | One or more merchants | A card issued as a reward | Outside the gift card rules if it carries the required disclosures |
| Reloadable account card | One merchant | Starbucks Card | Balance recorded as deferred revenue |
Starbucks shows the reloadable form. Its cards are issued when customers load an account balance. They can be bought in stores, online and in the mobile app, and in some markets from other retailers (Starbucks 10-K). Costco accepts its own proprietary stored-value card, the shop card, next to cash, checks and cards (Costco 10-K).
What rules apply to stored value cards?
Regulation E sets a floor for gift cards sold to consumers. A card can carry an expiration date only if the funds last at least five years from issue or the last load, with other conditions (12 CFR 1005.20(e)). Loyalty, award and promotional cards sit outside these rules. They must carry set disclosures on the front, such as their purpose and the expiration date of the funds.
Regulation E also limits fees. A dormancy, inactivity or service fee is allowed only after a year with no activity. The fee terms must be stated on the card, and no more than one such fee can be charged in a calendar month (12 CFR 1005.20(d)).
FinCEN treats closed-loop cards more lightly. An arrangement is not a prepaid program if it gives closed loop prepaid access to no more than $2,000 on any day. A person who sells over $10,000 of prepaid access to one buyer in a day, with no policy to prevent it, counts as a seller of prepaid access (31 CFR 1010.100). None of this is legal advice.
The FTC adds a fraud warning. It says gift cards are for gifts and are not for payments. It tells buyers to check that the stickers on a card are intact and the PIN is hidden (FTC). A program that sells cards should train staff to spot tampered racks.
Cards also live in phone wallets now. A wallet holds a token in place of the card number, which limits what a thief can copy. Our entries on digital wallet passes and tokenization cover how that works.
How are stored value cards accounted for?
The money sits as a liability until it is spent. Starbucks records amounts loaded onto its cards as deferred revenue. It counts them as revenue when they are spent. Its cards in many company-operated markets, including the U.S., have no expiry date and no service fees. From past redemption rates, it expects some balances never to be spent, and it books that as breakage in step with redemptions. Those rates reflect what must be sent to governments under unclaimed property laws, where they apply (Starbucks 10-K).
The scale is large. Starbucks started fiscal 2025 with $1,718.7 million in combined stored value card and loyalty balances. It deferred $15,245.8 million during the year and recognized $15,199.5 million. The balance ended at $1,751.7 million (Starbucks 10-K).
Breakage revenue was $200.4 million in company-operated stores and $22.0 million in licensed stores. By our arithmetic, that is about 1.5% of the amount deferred. Some cards are never spent, and breakage is the name for that gap. Our entry on breakage covers the concept.
How do loyalty programs use stored value cards?
Starbucks ties the two together. In nearly all markets, a customer who registers a Starbucks Card is enrolled in Starbucks Rewards at once. Members can also earn Stars by paying with cash, cards or some mobile wallets (Starbucks 10-K). The program terms add a boundary. A Starbucks Store Credit card works in stores. It is not a Starbucks Card, earns no Stars and cannot be registered or reloaded (Starbucks Rewards terms).
The line between money and points matters. A stored value balance is a customer’s prepaid money and carries consumer rules. A points balance is a program currency set by program terms. Costco lists reward certificates and its shop card as separate ways to pay (Costco 10-K). Keep the two in separate ledgers, with separate expiry rules. Our entry on gift card redemption covers the points-to-card path.
Six checks help before a program issues cards:
- Name the issuing entity and the card type under the rules above.
- Set the expiry and fee policy in writing.
- Plan for payments to the state on unspent balances.
- Reconcile the card ledger to the cash received each day.
- Train staff to spot tampered cards and payment scams.
- Keep points and card balances in separate ledgers.
For illustration, a retailer loads $10 million onto gift cards in a year and books 1.5% of that as breakage, which is $150,000. If unclaimed property law requires the retailer to send part of the unspent balances to the state, its own breakage is lower. Finance should set the estimate from history, as Starbucks does by market and channel.
How GRAVTY handles stored value cards
Loyalty Juggernaut says a points balance is a store of value, and that fraud targets it the way it targets deposits. GRAVTY AI-Trust flags unusual earn and redemption behavior as it happens (GRAVTY for financial services).
On the card side, the integration catalog lists gift card and prepaid reward providers, such as QwikCilver and Tango (GRAVTY integrations). A team can fulfill a reward as a card and keep the balance in the program ledger.
Frequently asked questions
What is the difference between a stored value card and a debit card?
A stored value card holds prepaid money on the card itself or in a record linked to it, and a debit card draws on a bank account. A store gift card is issued on a prepaid basis in a specified amount, in exchange for payment (12 CFR 1005.20). The two follow different consumer rules.
What is the difference between open-loop and closed-loop cards?
Closed-loop cards work at one merchant or group. Open-loop cards work at many unaffiliated merchants. Federal rules define closed loop prepaid access as funds usable only at a defined merchant or place (31 CFR 1010.100). A general-use prepaid card works at many unaffiliated merchants or ATMs (12 CFR 1005.20).
Do stored value cards expire?
Gift cards sold to U.S. consumers cannot expire sooner than five years after issue or the last load, with other conditions. Regulation E sets that floor for store gift cards and general-use prepaid cards (12 CFR 1005.20(e)). Some issuers choose none at all. Starbucks says its cards in many markets, including the U.S., have no expiration date (Starbucks 10-K).
Is a loyalty points balance a stored value card?
No. A points balance is a program currency, and a stored value card is prepaid money. Regulation E even sets loyalty, award and promotional cards apart from gift cards (12 CFR 1005.20). Starbucks keeps the two distinct. Registered cards earn Stars, and Store Credit cards do not (Starbucks Rewards terms).
How do merchants make money on stored value cards?
They earn the sale when the card is spent, and they book breakage on balances nobody spends. Starbucks booked breakage revenue of $200.4 million in company-operated stores and $22.0 million in licensed stores in fiscal 2025 (Starbucks 10-K). Merchants also hold cash between the load and the sale.