Gift Card Breakage Kills Incentive ROI (Here’s How To Fix It)

The Problem with Gift Card Breakage

You run a tight ship. Budgets are tight, teams are busy, and customers are picky. So when you choose gift cards as a reward, you expect one thing: behavior change — whether that is a signup, renewal, referral, or “yes” that wasn’t going to happen otherwise.

But the reality is that a chunk of those gift cards never get used. It’s not because people hate the idea, but because life is messy. Cards get buried in inboxes. Links get lost. Someone says, “I’ll use it later,” and later never comes.

Breakage isn’t a fraud problem. It’s a slow leak eating away at your margins.

If people don’t redeem, that means they’re not taking the actions you want — even though you’ve paid for their gift cards. That’s why loyalty researchers warn about “bad profits” — profits earned at the expense of customer relationships.

If breakage is high, your reward isn’t doing its job. And if your reward isn’t doing its job, you’re paying for idleness — rather than outcomes.

At Promotion Vault, we obsess over the opposite outcome: high redemption with low waste.
That’s one reason our top customers report an 86 NPS, and why we built a model that is pay-for-performance with instant digital rewards — so operators can keep control of economics while scaling acquisition, retention, and referrals.

Why do People Use Gift Cards?

Gift cards survive every new trend in marketing for one simple reason: They match how real people make decisions under pressure.

You’ve no doubt seen it in your own life: A birthday shows up fast, a coworker helps you out, or your kid’s coach goes above and beyond. A gift card becomes a clean easy way to thank them. It’s specific enough to feel thoughtful. It’s flexible enough to avoid getting it wrong.

A gift card is a permission slip to choose — without the awkwardness of cash.

The core reasons people choose gift cards

From consumer research and industry reporting, a few drivers show up again and again:

• Budget control: Many shoppers say gift cards help them stick to a spending limit.
• Convenience: People buy them because it’s fast, simple, and easy to do.
• Flexibility: The giver looks good while letting the other person pick what they want.
• Remote-friendly gifting: Digital delivery is easy when you can’t be there in person.

This is why gift cards also work so well as incentives. They feel like a real reward, not a coupon. And they can show up instantly, right when motivation is highest.

Why this matters for business operators

If you’re trying to drive a specific action — renew early, refer a friend, finish onboarding—timing matters. The strongest moment is the moment someone is already leaning in. Gift cards fit that moment: They’re immediate, understandable, and feel fair.

But there’s a catch. The same easy and flexible nature that makes gift cards attractive also makes them easy to delay. And delay is where breakage is born.

What is Gift Card Breakage?

Gift card breakage is the portion of gift card value that is expected to go unredeemed. In practice, it shows up when:

• a customer forgets the card
• the reward link gets buried
• the recipient loses interest
• the redemption process causes friction

Breakage is also a relationship metric

NPS (Net Promoter Score) and breakage tend to move in opposite directions. NPS is a customer loyalty metric measuring how likely customers are to recommend a company’s product or service. As NPS rises, breakage often falls. This is because the more engaged customers are, the more likely they are to redeem rewards (lower breakage) and favorably rate the providing companies (higher NPS).

Why Gift Card Breakage Happens

Nobody means to waste rewards. Think about your own experiences with gift cards. You got the reward. You felt seen. You even thought, “Nice, this will cover my next order!” Then things happened and before you know it the redemption link was at the bottom of your inbox or buried in a drawer somewhere. And that’s B2C breakage in a nutshell.

Most breakage is not rejection.
It’s delay plus friction.

What consumers actually do (and why it matters)

Bankrate surveyed U.S. adults and found 43% have at least one unused gift card, voucher, or store credit, averaging $244 per person. They also found 34% have lost money from a gift card misstep, including:

• 17% who lost a gift card
• 20% who let a gift card expire
• 12% whose gift card store went out of business

This isn’t a niche issue. It’s just normal consumer behavior.

The main drivers of gift card breakage

These patterns repeat across studies and reporting:

• People forget. This is the biggest one. Bankrate found 43% of U.S. adults have unused gift cards or credits. Research also lists procrastination as a common reason for non-redemption.
• Later feels safer. A gift card often has no urgent deadline. So it gets delayed, then lost in the noise.
• The store isn’t a perfect fit. Non-redemption often happens when the merchant is inconvenient or undesired. That mismatch turns a reward into a chore.
• The balance feels too small. Low values can trigger “not worth it” thinking. The customer mentally writes it off.
• The redemption path has extra steps. Every extra click lowers completion. Incentive programs suffer here, especially.
• Businesses close, and the value disappears. Bankrate found 12% of people lost card value from closures. AP News also warns about this risk and notes it’s a real driver of “lost value.”
• Confusion about rules fuels delay. Many people still think gift cards expire fast. Federal rules generally require at least five years before expiration. Fees are restricted too, under federal rules and Regulation E.

So when breakage happens, it’s often a behavioral issue. That has implications for incentive programs that revolve around instant digital gift card rewards.

Gift card breakage in incentive programs

Gift cards are still one of the most common reward formats for incentive programs — whether it’s for user acquisition, retention and loyalty, or double-sided referrals. That’s because they’re incredibly effective. But it also means that small leaks can compound fast.

You buy rewards in bulk, plan a campaign, and try to motivate behavior at scale. But then something happens between “reward sent” and “reward used.” Truthfully, gift card breakage within incentive programs usually comes down to a problem with the user experience.

For businesses, gift card breakage is what happens when a reward gets purchased, but the reward is never redeemed and the desired outcome never happens.

So when redemption is low, it often points to fixable leaks.

How incentive programs create gift card breakage

When it comes to broken incentive programs that increase gift card breakage, here’s what we see most often in the wild:

• The reward arrives too late. Motivation has a half-life. When a reward shows up days later, it feels smaller and divorced from the action it’s meant to be motivating.
• The reward is hard to claim. Extra steps kill completion. That’s true for customers and employees. One recent study of digital gift-card incentives found that up to one-third of participants didn’t redeem their incentive.
• The reward doesn’t match the person. Choice raises perceived value. A wrong brand reward becomes a chore. This makes conversion much less likely.
• Nobody owns the follow-through. Campaigns ship and then teams move on. Meanwhile, unclaimed balances sit idly. This is how rewards programs leak money and miss out on opportunities to drive conversions.
• Breakage hides the real performance. If you only track sends, you’re missing half the picture. Tracking redemption is the real key — and tying it to desired recipient actions is critical.

Luckily there are solid ways to combat each of these.

How to combat gift card breakage in incentive programs

Here is how to solve issues with gift card breakage that often occur within incentive programs.

• Tie rewards to a specific action and make redemption immediate.
• Keep redemption on brand and make it as easy as a single click.
• Provide customizable reward offerings, so people can pick and choose.
• Track sends vs. redemptions and use a platform with a pay-for-performance model.

Truthfully, breakage eats away at your margins. Redemption — the moment the reward actually works — is the real goal. Taking the actions above helps ensure that you’re providing a smooth redemption process for your reward recipients. It also ensures that you aren’t paying for instant digital gift card rewards that aren’t driving the actions you want.

What this means for business operators

At the end of the day, most business owners, operators, and marketers really only care about one thing: “Did the reward from my incentive program or campaign change the behavior I wanted?”

That’s because if the reward didn’t get redeemed, it didn’t work, and you shouldn’t pay for it. That’s why our instant digital gift card rewards are pay-for-performance. It’s also why our average NPS Score is 86.

Promotion Vault provides a full white-label instant rewards platform that makes it easy for both reward senders (business owners, operators, and marketers) and reward recipients (customers, subscribers, members, and prospects) to engage with instant digital gift card rewards.

Gift card breakage vs. escheatment (unclaimed gift cards)

If you’re an operator, these two words get mixed up all the time. And the difference matters — because one is an estimate and the other is a legal duty.

Breakage is what customers don’t redeem.
Escheatment is what the state may claim when nobody redeems.

Breakage: the accounting and performance concept

Gift card breakage is the portion of gift card value you reasonably expect will never be used. It’s tied to customer behavior: forgetting, delaying, losing, or abandoning the card.

Gift card breakage exists very differently, depending on whether you are using gift cards to fuel your incentive programs — or whether you are a store dispensing gift cards for your products and services:

• Customer experience (for businesses using gift cards to power incentive programs): low redemption often signals low engagement.
• Finance (for stores providing gift cards for goods and services): gift cards start as a liability, and breakage affects when and how you recognize revenue under ASC 606.

For stores and service providers who have gift cards purchased for redemption, but never redeemed, breakage can look like a windfall in spreadsheets, especially in the short term.

But for businesses using gift cards to power their incentive programs, it’s really a warning light — because disengaged people don’t convert, renew, or refer.

Escheatment: the legal and compliance concept

Escheatment is part of state unclaimed property law. It’s the process where unclaimed property gets turned over to the state after a dormancy period.

In many states, unused gift card balances can fall under these rules. However, it’s not consistent nationwide. Some states exempt certain gift cards, some don’t, and the definitions vary.

So here’s the key operator point:

Breakage is not always yours to keep. Sometimes, it becomes unclaimed property gift cards that must be reported and remitted.

Which state gets to claim gift card breakage?

When a gift card goes unused, states apply priority rules to determine who can claim the unclaimed property. A common rule set is:

• If you have the owner’s last known address, that state often has the first claim.
• If you don’t, the issuer’s state of incorporation can matter a lot (which is why Delaware comes up constantly in escheatment conversations).

A concrete example: Delaware

Delaware’s unclaimed property law explicitly includes stored-value cards and gift cards, and sets a five-year dormancy trigger based on the later of purchase, fund additions, balance verification, or other indication of interest.

Delaware also uses a specific valuation approach for gift cards: The amount unclaimed is tied to the issuer’s maximum cost of goods/services represented by the card.

That is a big deal for gift card liability reporting and risk planning.

A national lens: the Uniform Law Commission’s model act

The Revised Uniform Unclaimed Property Act (RUUPA) includes optional language for gift cards. It also discusses a five-year dormancy period for gift cards and clarifies the amount presumed abandoned for stored-value cards as “net card value.”

Of course, currently, not every state adopts the model act as-is. But it shows you the way regulators think when it comes to gift card breakage.

Why operators should care

Breakage becomes dangerous when it stops being unused liability and turns into:

• compliance exposure (audits, penalties, catch-up reporting)
• relationship damage (customers who didn’t feel the reward)

To be clear, compliance exposure issues with gift card breakage mostly apply to stores and service providers who are selling gift cards for their own goods and services that never get redeemed.

Companies leveraging gift cards to power their incentive programs don’t really have to worry about this. However, they absolutely need to worry about potential relationship damage — as well as wasted spend on unused gift card rewards.

How to Reduce Gift Card Breakage in Incentive Programs

If you’re buying gift cards to power incentives, breakage isn’t extra margin. It’s a leak in your growth engine. The fix is usually not a bigger budget, it’s better design.

The best anti-breakage strategy is simple: make redemption feel instant, obvious, and worth it.

Below are the highest-leverage moves we see across incentive programs — grounded in behavior science and real-world redemption patterns.

Make the reward immediate

Delayed rewards lose force. People mentally discount them.

Studies across reward timing show that immediate rewards tend to produce stronger performance and engagement than delayed rewards. That’s the core reason instant rewards beat delayed incentives

Operator move: trigger the reward right after the action. Waiting reduces the mental connection between the reward and the behavior that led to it.

Reduce redemption to one clean step

When programs use simple digital codes and direct delivery, gift cards can be effective motivators. But complexity kills redemption. Every extra click is a drop-off point.

Operator move: Ensure one-click claim, put the claim link at the top, and make it impossible to miss.

Use reminders that feel helpful, not naggy

People don’t ignore rewards because they’re rude. They ignore them because they’re busy.

In loyalty programs, targeted push notifications have been shown to increase participation and reward collection. But reminders work best when they’re timely and low-friction.

Operator move: Send a reminder at 24 hours if unclaimed, then again at 7 days. And make sure to use the channel they’ll actually see (SMS, in-app, email).

Offer choice, but don’t overwhelm

Choice can raise perceived value. But too many options can stall decisions. Choice architecture research shows that how options are presented can strongly shape decisions.

Operator move: Offer a short, curated set of the most-picked rewards first. Then allow people to see see all the options, if they want. Alternatively, offer a search or filter function so people can easily find what they already know they want.

Tie the reward to one clear action

Breakage rises when rewards feel random. When the reward connects to a specific action, it feels earned. That helps the brain link behavior to payoff (and can encourage repetition of that action).

Operator move: one reward → one action → one message. Example: “Finish onboarding today → claim your $X instantly.”

Use guaranteed rewards over lotteries for core actions

If you need reliable completion, guaranteed rewards often perform better than lotteries. A 2023 study on incentive recruitment found guaranteed incentives — even small ones — can improve acceptance compared with larger lottery-style incentives.

Operator move: Use guaranteed rewards for critical behaviors (renewal, referral completion).

Track redemption and tie it to outcomes

Sending a reward is not success. Redemption is the moment value becomes real. So track redemptions alongside and the downstream action (upgrade, purchase, referral) — and make sure you are using an instant rewards platform that has a pay-for-performance business model. That’s how you stop paying for idleness.

Where Promotion Vault fits

Everything above is why we built Promotion Vault the way we did:

• Instant digital delivery so timing stays tight
• Low-friction claiming so rewards don’t die in inboxes
• Pay-for-performance economics so you’re not paying for unused rewards
• A focus on experiences that keep engagement high

How to Use Promotion Vault to Prevent Breakage and Increase Conversion

Most incentive breakage comes from three human realities:

• Time gaps kill motivation. Immediate rewards are more likely to reinforce behavior.
• Friction kills follow-through. Extra steps create drop-off, even when intent is good.
• Forgetting is normal. 43% of Americans report having unused gift cards et al.

Our business model in one line: pay-for-performance

We use a pay-for-performance instant rewards model — so operators save money, reduce waste, and can reinvest into higher reward value that better lift conversions. Ultimately, it protects you from paying for rewards that don’t work and saves you money that you can pour into more enticing rewards.

How Promotion Vault reduces breakage

There is a reason we have an average 86 NPS Score. And it largely has to do with how we translate behavioral reality into a practical operator workflow:

• Instant delivery tied to the moment: When someone completes the action you want, the reward should show up right then. This matters because immediate rewards are linked to stronger persistence and motivation than delayed rewards. Our platform makes this easy to incorporate into your workflows and automate.
• Low-lift setup for the operator: We’re built for membership-based businesses, retail operators, marketing teams, and others who don’t want more busywork. The goal should be simple: launch quickly, automate triggers, and remove manual sending. Our integrations and API make this easy for anyone to set up and run with.
• A redemption experience that doesn’t fight the recipient — or your brand: Your reward shouldn’t feel like a scavenger hunt that requires yet more work. It should feel like a reward for work that has already been accomplished. And it should come with all your branding, providing a user experience that feels seamless. We provide a simple, easy white-label experience — for both you and your reward recipients.
• A feedback loop, not just a payout: Reward moments can double as learning moments.
  When someone redeems a reward, we offer survey tools so that you can capture intent, sentiment, and friction at the moment they are most likely to respond — then iterate. Our customers have seen 97% response rates doing this!
• Measurement that matches reality: Sending a reward is not success. Success is seeing the reward recipient carry out the action you want (and then seeing that behavior repeated). Our pay-for-performance model ensures you are actually paying for rewards that move the needle. On average, our customers see a 20% revenue lift.

Objections we hear (and how we answer them)

“Gift cards are a waste of money.” They can be — if they’re delayed, buried, or hard to use. That’s why we focus on instant delivery and low-friction redemption.

“This sounds expensive.” Paying for unused rewards is expensive. Pay-for-performance is designed to reduce that waste.

“We don’t have time to manage another tool.” You shouldn’t have to. Rewards only work at scale when the system runs without daily babysitting. We integrate easily with your current tools so you can automate the reward process.

“Will customers actually like it?” Customers like being recognized fast — when it’s tied to what they just did. Pay-for-performance instant rewards ensure they feel appreciated, are encouraged to repeat their behavior, and that you see measurable progress.

What to Do Next to Prevent Breakage

Breakage drops when rewards are immediate, easy, relevant, and trackable. That’s it.

If your incentive program is actually a growth lever, redemption is the moment it actually pulls.

So here’s how to build a system that reduces gift card breakage.

Step 1: Run a fast breakage audit (30 minutes)

Pull the last 30–90 days of incentives and answer:

• What % of rewards were claimed?
• What % were redeemed?
• How long did redemption take?
• Which channels performed best (SMS, email, in-app)?
• Which reward types underperformed?
• Which campaigns had the most “sent-but-unused” value?

If you’re not tracking this, you’re flying blind. Which is a great way to burn money.

Step 2: Fix the four most common leaks

Here are common leaks and fast fixes:

• Leak 1 — Timing drift: If rewards arrive later, they feel smaller. Immediate rewards tend to reinforce behavior more strongly than delayed rewards. Fix: trigger the reward instantly after the action.
• Leak 2 — Too many steps: Every extra step lowers completion. Fix: make claiming feel like one click.
• Leak 3 — Low relevance: Wrong brand rewards become chores. Fix: offer a curated set of popular options.
• Leak 4 — No follow-up: Forgetting is normal. 43% of U.S. adults report unused gift cards or credits. Fix: send two polite reminders to unclaimed recipients.

Step 3: Set a “minimum redemption standard”

Pick a baseline you can defend. Example: “We aim for 50%+ claimed within 7 days.” If a campaign misses the mark, you simply learn from it and adjust the system.

Step 4: Make waste impossible with pay-for-performance rewards

This is the operator move that changes everything. If you’re paying for rewards that never get used, you’re funding breakage. A pay-for-performance model is designed to reduce that waste.

And when waste drops, you can often reinvest into:

• better targeting
• higher reward value
• more frequent reinforcement

That’s where conversions climb.

Your Go-To “If-Then” Plan For Combatting Gift Card Breakage

If you want to reduce breakage and drive more redemptions, then build your Promotion Vault account and set up your first instant reward trigger. That’s the fastest way to turn rewards into outcomes.

FAQ: Gift Card Breakage, Incentive Programs, Instant Rewards

What is gift card breakage?

Gift card breakage means gift card value that goes unredeemed — because it’s forgotten, lost, or abandoned.

• In incentive programs: breakage = paid rewards that didn’t drive the action.
• For gift card issuers: breakage = unredeemed balances that can affect revenue recognition and sometimes unclaimed property obligations.

A practical pattern we see: NPS and breakage tend to move in opposite directions, with engagement as the bridge.

What’s a typical breakage rate?

It varies by industry, channel, and gift card type.

Some public-company reporting analyses suggest breakage is often in the low single digits for many retailers. In other contexts, it can be higher depending on redemption curves and program design.

If you’re running an incentive programs powered by gift cards, the more important metric is simply ensuring redemption is tied to outcomes.

Do gift cards expire?

Often, not quickly. In the U.S., many gift cards must remain valid for at least five years, and certain fees are restricted. Details can vary based on card type and terms.

What happens to unredeemed gift cards?

Three different answers, depending on who you are:

• Consumers: many people simply don’t use them. A large share of U.S. adults report having unused gift cards, vouchers, or store credit.
• Incentive program operators: an unredeemed reward usually means the reward didn’t land, and the desired action didn’t “stick.” That’s wasted incentive spend.
• Gift card issuers: unredeemed balances can remain a liability for a long time, then may be recognized as breakage revenue under accounting rules — or potentially reported as unclaimed property, depending on state law.

Is gift card breakage legal?

Breakage itself isn’t “illegal.” It’s an outcome. The legal question is usually: who is entitled to the unredeemed value? For some issuers, state unclaimed property rules can require reporting and remitting certain unused balances.

For incentive program operators buying rewards, this is usually not a revenue recognition issue. It’s a performance and efficiency issue.

What is escheatment?

Escheatment is the legal process where certain unclaimed assets get turned over to the state as unclaimed property after a dormancy period. Most incentive program operators don’t deal with this directly because you’re not issuing stored value.

How can merchants reduce breakage?

Two lanes:

• If you sell gift cards: make balances easy to check, reduce confusion, and nudge redemption with simple UX and reminders.
• If you run incentive programs: deliver rewards instantly, reduce claiming to one step, send a helpful reminder cadence, track everything, and use a pay-for-performance instant rewards platform.

How does Promotion Vault reduce breakage?

We’re built around pay-for-performance instant rewards, designed to push value toward real outcomes — so operators reduce waste and can reinvest savings into stronger incentives that lift acquisition, retention, and referrals.