Scenario: Sarah received a gift card for her favorite store.
What type of payment method is this?
a) Prepaid Card
b) Gift Card
c) Credit Card
d) Mobile Wallet
The correct answer and explanation is:
The correct answer is b) Gift Card.
A gift card is a prepaid card that has a specific value loaded onto it, which can be used for making purchases at a specific store or group of stores. It functions like a debit card but is limited to the store or brand it is associated with. In this case, Sarah received a gift card for her favorite store, meaning it can be used exclusively for purchases at that store until its balance is exhausted.
Gift cards are a popular payment method, especially as gifts, because they offer recipients the flexibility to choose what they want to buy while providing a specific monetary limit. Unlike a prepaid card, which may be used anywhere that accepts the card’s payment network (like Visa or MasterCard), a gift card is typically tied to a specific retailer or brand. The user does not need a bank account to use a gift card, and it does not incur interest charges like credit cards.
Gift cards also differ from credit cards in that they do not offer a credit line or the ability to borrow funds. Instead, they are a form of prepaid spending, with the card’s value already loaded onto it at the time of purchase. Mobile wallets, on the other hand, are digital forms of payment that store payment information on smartphones, allowing users to make payments via NFC or other digital payment methods.
Gift cards can be an excellent choice for personal budgeting or gifting since they help control spending, ensuring the user only spends the amount available on the card, making them a safer option compared to other forms of credit.