Whether you're rewarding employees for an exceptional quarter or thanking conference attendees for visiting your booth, choosing the right incentive matters. Both prepaid cards and gift cards offer advantages over physical gifts, but each serves a distinct purpose in your incentive strategy.
The key difference? Flexibility versus focus. Prepaid cards give recipients maximum choice in how they spend their reward, while gift cards direct spending toward specific brands that align with recipient preferences or your business goals.
Explore the strengths and trade-offs of each option so you can offer the right incentives to drive meaningful actions for your business.
Understanding prepaid cards
A prepaid card functions like a debit card, but it’s pre-loaded with a fixed amount. Recipients can generally use these cards anywhere the card network (Visa, Mastercard, or American Express) is accepted online and in-store.
Think of prepaid cards like a modern cash reward: versatile, practical, and universally appreciated.
Pros of prepaid cards:
Wide acceptance. Recipients can use prepaid cards almost anywhere the card network is accepted.
Flexible spending. Since they aren’t tied to a single brand or marketplace, Visa cards act more like discretionary cash. Folks can use them for everything from retail items to travel to groceries.
Customizable branding. Some prepaid gift cards allow for companies to include their logos for an immersive brand experience.
Stronger security. Prepaid cards include built-in fraud protection, PIN options, and dispute resolution through major card networks.
Cons of prepaid cards:
More recipient data is required. Regular prepaid cards don’t require special information but reloadable cards may require recipients to provide personal details like name, address, date of birth, or SSN to verify their identity.
Higher minimum order requirements. Bulk orders often require you to purchase at least 25 to 50 cards.
Potential monetary fees. Some prepaid cards have activation fees, monthly maintenance fees, or inactivity fees that reduce the amount of cash recipients get to use on purchases.
Understanding gift cards
A gift card limits spending to specific retailers or marketplaces like Amazon, Target, or Starbucks. While more restrictive than prepaid cards, this limitation can work to your advantage when you want to reinforce brand partnerships or guide recipient choices.
Pros of gift cards:
Simple redemption. Since gift cards can only be used at specific merchants, spending decisions are simple and enjoyable.
Brand affinity. Gift cards can help align your business with other retailers recipients know and love, leveraging existing brand loyalty.
Minimal data requirements. Digital gift card delivery typically requires only an email address or a phone number.
No fees. A $50 gift card costs $50 with no added fees.
Cons of gift cards:
Limited use. Gift cards can only be spent at a specific store or brand in the issuing country.
Less customization and branding. Most gift card retailers do not support cobranding options, although you can usually customize the message that pairs with the card.
Escheatment risk. Unused balances may be subject to escheatment laws for unclaimed property, which vary by state.
Limited security features. Gift cards typically aren’t registered to recipients, and they lack fraud protection or recovery options if they’re lost or stolen. Their anonymity makes them easier targets for incentive fraud.
Common use cases: When to choose each reward type
Based on our analysis of customer incentive data, here are some common reward trends for different business use cases.
Best reward type for employee recognition: Prepaid cards
Visa, Mastercard, and other prepaid cards are top incentives for employee rewards programs. Employees perceive them as cash equivalents or bonuses, increasing their perceived value. The flexibility to spend funds anywhere makes prepaid cards feel more impactful than brand-specific gift cards.
Key advantages:
Functions like discretionary income
Enhanced security features protect high-value rewards
Supports everyday and aspirational purchases
Best reward type for customer incentives and promotions: Gift cards
Gift cards are popular incentives for customer-facing campaigns, particularly for:
Referrals and review incentives
Loyalty program milestones
Promotional giveaways
Brand partnership activations
They work well for even small dollar amounts and feel like more of a treat than a traditional product discount or giveaway.
Key advantages:
Simple redemption process
Aligns with consumer brand preferences
Creates positive brand associations
Best reward type for research panels: Prepaid cards
Research and insights teams often prefer giving out prepaid cards instead of gift cards because they work well across diverse demographics with different spending habits.
For in-person focus groups, research teams can also hand out physical cards onsite, providing an immediate reward for participation that helps sustain engagement over time.
Key advantages:
Global availability
Flexible spending options for participants
Appeals to diverse participant pools
Best reward type for holiday gifting and milestone rewards: Gift cards
Customers, partners, and employees often prefer gift cards for holiday gifts and anniversaries or other milestones because:
They’re more personal. If you choose a brand you know the recipient loves, they’ll feel appreciated and cared for.
Delivery is fast and easy. This makes gift cards ideal for one-off gestures or mass distributions.
No sensitive personal info is required. This keeps the experience simple and stress-free.
The main takeaway: Prepaid cards are great for practical, higher-value rewards, while gift cards shine for celebratory, brand-aligned experiences.
Security considerations
From a security standpoint, prepaid debit cards offer much stronger protections than gift cards. This is especially true for businesses and organizations with regulatory or financial obligations.
| Prepaid debit cards | Gift cards | |
|---|---|---|
| Cardholder protection | Covered under Regulation E (12 CFR § 1005) | Not covered under Regulation E |
| Dispute rights | Can file a claim for unauthorized use, fraud, or loss | No guaranteed dispute process |
| Remote disabling | Can often be locked, replaced, or frozen | Rarely replaceable once activated |
| Network security | Protected by Visa / Mastercard zero liability policies | Depends on issuer, often minimal |
| PINs and authentication | Many support PIN and CVV codes | Typically no PINs or extra protection |
| Tracking usage | Issuers offer transaction records and monitoring | Limited to none |
Consider this scenario: If an employee loses a $500 prepaid Visa card, they can report it, freeze the card, and receive a replacement with the full balance. Regulation E protects against unauthorized charges. With a gift card? Those funds are typically gone forever.
This added security matters most for:
Rewards over $100
International rewards
Programs with compliance requirements
Long-term incentive programs
Compliance requirements
Merchant-issued gift cards don’t have many regulatory compliance standards, especially if you can only use them at a single retailer. But prepaid cards do, especially in programs with high payout volumes or international recipients.
These key regulations may apply:
Know Your Customer (KYC) guidelines: Reloadable prepaid card issuers may need to collect identifying information like the recipient’s name, address, and SSN.
Anti-Money Laundering (AML) policies: Card limits and monitoring may be imposed to prevent fraud and other illicit financial activity.
Office of Foreign Assets Control (OFAC) sanctions screenings: Any cross-border rewards must comply with the U.S. Treasury’s list of sanctioned entities to avoid prohibited payments.
Tax implications: both are considered income
As far as taxes go, the IRS treats both reward types identically. Both gift cards and prepaid debit cards are considered compensation, just like regular cash. Because of this, both are taxable under most circumstances.
Prepaid Visa cards and merchant-specific gift cards are:
Always taxable when given as part of employee rewards or sales incentive programs
Subject to 1099-MISC reporting for non-employees if the total value meets the federal minimum threshold
Must be included on W-2 for employees if used for recognition or to reward performance
Not exempt from the de minimis rule, regardless of amount
For full details, check out the IRS Publication 15-B.
Disclaimer: This overview is meant to give you the lay of the land, not replace a proper map. It pulls together key themes and pitfalls we see around reward-related taxes, but it doesn’t cover every twist in the code — or your company’s unique facts. Before you rely on anything here, run it past your own tax advisors to be sure you’re handling rewards in a way that’s fully compliant and optimized for your situation.
Making the most of your business incentive choices
The choice between prepaid Visa cards and gift cards ultimately depends on your specific goals. If maximum recipient flexibility is most important, prepaid cards are an ideal choice. If you care about delivering brand-focused experiences, gift cards can help reinforce those connections.
Tremendous makes it easy to send prepaid cards and gift cards at scale. Our free-to-use platform provides:
2,000+ redemption options across 200 countries
Instant digital delivery via email and text
Flexible choices so recipients can choose a reward that’s most meaningful to them
Dedicated support for team operations and recipient redemption questions
Whether you're recognizing employees, incentivizing customers, or compensating research participants, the right platform can help your business deliver rewards people remember and appreciate.
