They were illegally being traded for cash.Teenteen readers may be familiar with the Sea Story game controversy. In news coverage of the issue, you may have heard of the gift certificates used as prizes for winners in those game rooms. I am sure some of you have used similar certificates when buying books or paying for movie tickets. Today, we take a look at those documents and how they work.
Q.What is a gift certificate?
A.A gift certificate can be exchanged for goods and services worth whatever amount is written on the certificate. There are more than 200 different kinds of certificates in circulation today, although most customers use only about 20 of them. The most popular ones are issued by major department stores or shoemakers.
How are gift certificates different from bills or paper money?
A government recognizes the face value of bills, so they can be exchanged for any goods and services, as long as the government in question doesn’t collapse. In contrast, the value of gift certificates is recognized only by the issuing company. If that company goes bankrupt, its certificates lose their worth. In sum, gift certificates aren’t universally accepted like bills.
Why do companies print gift certificates?
The companies that issue certificates end up getting the money from retailers before the certificates are even sold, and they can invest the quick cash into other business areas.
How do the certificates benefit consumers?
By utilizing certificate-trading sites on the Internet, savvy consumers can buy certificates at a lower price than their actual value. That’s because the issuing companies, hoping to get quick cash, choose to turn a large number of certificates over to brokers at once for a discounted price. All in all, consumers end up buying goods and services at bargain prices, and certificates also make for good gifts. Beware, though, of certificates that are offered well below the actual value, because they may be counterfeit.
What is a “prize” gift certificate?
The stated purpose for the use of “cultural” gift certificates was as coupons for cultural items, such as books, CDs, and tickets for music concerts. But the government began allowing these certificates to be used as “prizes” in adult game rooms, and there are 18 kinds today. These were then being used and cashed in like chips at casinos, rather than for their original purpose.
Can the certificates be redeemed for cash?
No, they can’t, because they can only be exchanged for certain products and services. However, if customers use only 80 percent of the actual value of 5,000-won ($5.30) and 10,000-won gift certificates, they can receive change in cash for the remaining amount. The same rule applies to prize gift certificates. However, it is illegal to exchange prize certificates from game rooms for cash inside such places. The owners of the rooms would operate a cashing center nearby, sometimes in the same building, and convert certificates into cash at a discount price.
What happens if the issuing company goes under?
The certificates then become useless. For holders to demand refunds for their worthless certificates would be unrealistic because the issuer is bankrupt and may not have the means to compensate the holders.
To prepare for situations like this, issuing companies buy guarantee insurance policies. The guarantee insurer would reimburse individual holders if the issuer declares bankruptcy. But there is a limit: each person may be reimbursed only up to 300,000 won for the certificates. However, the guarantee insurer does not compensate owners of adult game rooms or operators of money-exchange houses.
According to the Financial Supervisory Service, the market for prize gift certificates is about 400 billion won, and Seoul Guarantee Insurance Co. has insured about 200 billion of that.
Is it okay to buy gift certificates now?
There were some concerns amid the Sea Story controversy that the circulation of all gift certificates, including prize certificates from game rooms, would be halted. At this point, it is a very unlikely scenario. Prize certificates account for only a fraction of the overall gift certificate market. Certificates from department stores eat up more than half of the gift certificate pie. Cultural certificates account for roughly 25 percent, and only a tiny number of those were used in game rooms as prizes. Thus, certificates for general consumers should not be affected much by the controversy.
Still, it is true that problems surrounding prize gift certificates have hurt the image of gift certificates in general. Some major movie theaters have capped the use of gift certificates to 10,000 won per person. But to call this “the crisis of gift certificates” is a stretch.
Let’s go back to the prize certificates for a moment. In the past, winners at adult game rooms would receive dolls from China as prizes. Those were virtually useless, but the market for the dolls still amounted to 400 billion won. The government began allowing cultural certificates to replace the dolls so that the industry would cut down on imports and the certificates would help promote the cultural sector.
In March 2005, the Culture Ministry authorized 22 companies to print prize gift certificates but when they over-issued the certificates, the ministry stopped issuing licenses.
Then in July last year, the ministry asked the Korea Game Development and Promotion Institute to select companies to print prize certificates. The controversy emerged because of speculation that some companies lobbied to be selected.
by Choi Ik-jae