How to Profit & Meet Sign-up Bonuses From Gift Card Reselling

The following is not financial or tax advice. Please consult a CPA or investment professional before making tax or investment decisions.

Gift cards can help you meet sign-up bonuses

You just got approved for a large sign-up bonus such as the Chase Sapphire Reserve and you have to meet a large spending requirement, but your day to day spending is unlikely to be sufficient to meet the spending requirement. One alternative is to buy gift card debits and monetize them using the strategies outlined here. Another great option is to buy gift cards with the credit card and then sell the gift card for a small profit or loss.

Gift card reselling for profit

Making a large enough profit on gift card reselling to justify the time and effort it involves is tough, but it is possible. The margins are generally thin in the few percentage points range. In order to make a high enough margin that its worth doing you need to scale the number of dollars you resell and find creative ways of “stacking” discounts as discussed below.

Understanding the gift card ecosystem

There is a giant ecosystem that exists to resell gift cards. There are consumer-oriented reselling sites such as Cardcash and Raise that advertise heavily and will usually be the top search results when you google “reselling a gift card”. These sites are geared towards people that want to sell the remaining balance on a card because they don’t shop at the retailer or would prefer cash. Consumers that sell to these sites will usually have to accept a significant discount from face value or pay an 8-15% commission.

The more advanced gift card resellers will use sites such as Aligned Incentives, Card Center, or Card Bay. Each one of these sites is set up with a similar structure. They list a set of “deals” daily that consist of gift cards that are on sale at retailers. If you have access to the deal that is available you can reserve the deal, buy the card(s), and then submit them. You are usually then paid for the cards in 2 weeks. The deals usually have a short life span and the capacity for the most lucrative deals are usually quickly reserved.

Reselling process:

1. You select a deal and then make a reservation for a certain number of cards/dollars. The reservations are not binding, so you can always cancel if you fail to get the deal because it is sold out or no longer want to do it. Making a reservation is also not legally binding on the reseller, but they usually will honor a reservation.
2. Once you have made a reservation, you purchase the card.
3. Submit the gift card number and if applicable, the gift card pin. Some interfaces allow you to copy and paste all the numbers from a spreadsheet or upload a spreadsheet. Others require you to copy and paste them manually.
4. Payment is typically received 14 days after cards are submitted. You can also select a longer payment period although for reasons outlined in the counterparty risk section below, I would normally choose the shortest payment period possible.

Discounts/Premiums

Most deals will take the following form:

Daily deal: Krispy Kreme $15 egift cards in a 4 pack  

Price after Costco discount: 75%

Price reseller pays: 73.5%

Your discount/premium: -1.5%

The majority of deals are at a discount meaning you “lose” money relative to the price you pay. The reason for this is that you get credit card points and other forms of compensation that make up for the discount. In the example above, Costco Executive members get 2%, so your profit assuming a 1% credit card is actually 1.5% (2% from Costco + 1% credit card -1.5% discount). In other cases, a category bonus could give you 3-5% so even deals within that range may be worth doing. People that are trying to meet a sign-up bonus who may be getting a 10-20% point yield on their spending may be willing to take even a 5% discount if it helps them meet the sign-up bonus that they otherwise could not meet from their organic spending. In addition to deals, most sites also have permanent offers for gift cards such as Amazon, Bestbuy, Home Depot, and Target. These retailers tend to have the lowest discounts to face value and have virtually unlimited demand.

Stacking

In addition to sign-up bonuses, the key to making gift card reselling profitable is stacking multiple discounts. Below is a non-exhaustive list of major ways to stack discounts.

• Use a card that has a relevant category bonus. For example, if you are buying a gift card  at Sam’s  Club, use a card with a warehouse club category bonus. Many category bonuses will exclude gift cards but they may or may not be able to tell you purchased a gift card.
• Make your gift card purchase through a shopping portal such as Rakuten, Capital One Shopping, or Swagbucks.  These portals will add an additional few percentage points discount to your gift card purchase. As is the case with category bonuses they often, but not always exclude gift cards. In practice they may give you rewards even if you purchase a gift card and it is prohibited. It is highly dependent on the deal and site.
• Enroll in and use card offers. Card offers from American Express, Chase, Citi, Capital One and US Bank almost always automatically stack with other discounts. This can turn an otherwise unprofitable gift card purchase into one that is highly lucrative. Check the offers section of your credit card portal or sign-up for Card Pointers which will add all your credit card offers on every one of your cards so you never miss an offer.
• Join retailers rewards programs with cash back. Many retailers such as Sephora, Ulta, and CVS have free rewards programs that offer cash back on purchases, some of which include gift cards. Costco is particularly lucrative as it gives executive members 2% on all purchases including gift cards paid in the form of store credit for an extra $65 a year. Sam’s Club explicitly prohibits gift cards from earning 2% on gift card purchases.
• Get a retail credit card that offers cash/rewards. Retail credit cards are almost never worth getting. However there are unique cases such as the Amazon Prime Visa card which provides 5% back on Amazon purchases including gift cards.

Why gift cards have different discounts to face value

Amazon and Walmart gift cards are usually worth at least 92% of face value whereas Cold Stone Creamery could sell for 60% of face value. Why the difference in discounts? A gift card will trade at the lowest discount to face value if it has a broad number of items/services you can purchase with it or allows you to purchase a necessity. In other words the more it is like cash, the more likely it is to trade near face value. You can buy virtually any good you want on Amazon or Walmart including necessities such as groceries.  Similarly gasoline, is needed by virtually everyone and so people will pay close to face value on virtually any major gasoline chain’s cards. Compare that with a Cold Stone Creamery gift card. You can only use it to purchase ice cream, which for anyone but stoned college kids or pregnant women, isn’t a necessity.

Any gift card that is normally sold at a discount by a wholesale club, grocer, or the retailer itself will also trade at a significant discount. For example, Bowlero or Top Golf are always available at a 20% discount at Costco.com so they will always be discounted by at least 20% off face value.

Taxes

Credit card rewards are usually not taxable as the IRS deems the reward as a discount not income. However, if you are buying a gift card and then reselling it, the additional discount you are getting from credit card points reduces your cost basis in the gift card and needs to be taken into account. For example, if you buy a gift card for $100 at a grocery store and get 5% cash back, then sell it for $99, your cost basis is really $95 not $100 and your profit is $4 not a loss of $1. If you only sell a small number of gift cards a year no one is likely to look or care, but if you resell at a larger scale, you should keep track of and correctly report your cost basis and profit.

In California there is not a sales tax on gift cards, only on the items purchased with the gift cards. Gift cards are considered intangible property and therefore sales tax is not collected. Other states may have different sales tax requirements and you should look your state’s requirements up before you resell a gift card to ensure you are in compliance with their laws.  

Risks and risk mitigation.

As the book The Moon is a Harsh Mistress (fun read) correctly pointed out, there is no such thing as a free lunch. Gift card reselling is not a risk free endeavor, but with the right policies you can mitigate the risks.

• Forgetting a card
  • As you scale and resell a larger number of cards, you may forget one or two cards. As reselling is generally a few percentage point margin business, forgetting a few cards can dramatically reduce your profitability.
  • Mitigation: You can avoid forgetting a card by immediately recording every card you receive and marking them off in a spreadsheet as they are sold or used. For physical cards you should also record them and can also use a mark like an X or 0 to show that they were used.
• Stolen cards
  • Gift card thieves have become adept at draining both physical and e-gift cards.
  • Mitigation: Make sure you activate each card you purchase, write down the gift card number in a secure spreadsheet, and check that the balance matches your purchase amount. If the balance is zero or does not match your purchase amount call, email, or visit the retailer and ask for a refund. Save your electronic and physical receipts as you may need them to prove you purchased the cards.
• Mistakenly entering the wrong numbers
  • If you put the wrong gift card number into a reseller’s portal you will likely be hit with a small fee and more importantly, you will get stuck with the gift card and not get paid. If you still have time before the deal expires you can resubmit it or ask for an extension.
  • Mitigation: Make sure that your spreadsheets are formatted as text. There is always the chance that a zero at the beginning or end of a gift card number gets dropped in Excel if its formatted as a number. Whenever possible copy and paste rather than manually entering a number. Card Center lets you copy and paste gift card numbers and pins from spreadsheets, which cuts down potential entry errors. Always double check that all the gift cards numbers and pins in your spreadsheet have the same number of digits.
• Counterparty risk
  •  In gift card reselling there is always what finance professionals call “counterparty risk.” The resellers above could always go bankrupt and you may only get some or none of the money they owe you.
  • Mitigation: The sites often offer higher payouts if you are willing to accept a longer payment term, for example an additional .7% if you wait an additional 30 days. Your personal cost of capital is usually much higher than the extra return they are offering and is usually not enough to compensate you for the counterparty risk of the reseller going bankrupt. To reduce your risk, always take the shortest payment terms possible. Also make sure that you are fully paid for each card you submit.