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Open-loop (Visa, MasterCard, American Express, Discover) gift cards, while not tied to a particular merchant, can be very difficult to use successfully.  In this post, I’ll discuss how to best use them for online purchases.  In my next post, I’ll cover simple rules for using them at a merchant in-person.

If you have a particular retailer in mind to use a gift card at, whether for yourself or someone else, closed-loop gift cards (Target, Wal-Mart) might be a better choice as virtually none of the open-loop gift card issues (like fees and verification) exist for closed-loop cards, and they are often available at a discount.

Online purchases

These cards in most ways look electronically just like credit cards, and most people want and expect them to behave just like credit cards.

When you try to use a card for an online purchases, whether it is a credit card or an open-loop gift card, you will be asked to enter the billing address for the card, which is used for the address verification system (AVS) where the numbers associated with the address you give (house number on street and zip code) are compared with what is on file for the card.

Some gift cards simply ignore AVS, which means that the issuing bank sends the merchant an AVS code that says AVS is not being used.  Here is where the trouble starts.  Most merchants will see this as an address verification pass, but some will see it as a fail, and the transaction will be declined.

Some gift cards do not ignore AVS, which means that until you go to the website listed on the card and register it to an address, the AVS check will always come back as a fail.  There is no way to tell what cards behave in which ways, and in some cases cards issued by the same bank that look exactly the same will behave differently in this respect.

So you just tried to use your card which you had not registered, and it failed because the address verification failed.  Guess what?  Now your card has a hold on it for the amount you tried to purchase.  These holds will typically last for more than a week and up to three weeks!

If you plan to use a card online, unless you know that it is the type that does not use address verification, always register your card to the address you plan to have stuff shipped to, before you use it.  It may also help to test the card out with a small purchase (so it doesn’t put your entire card value on hold) before you make a larger purchase.

MasterCard and Discover have recently introduced new merchant requirements that will at least help by significantly reducing the length of time your funds are on hold after a failed transaction, but it will be a year or more before those fully take effect.

In my next post, I’ll discuss using open-loop cards in-person.

This post by originally appeared in the Plastic Jungle Blog.