There is a big difference between store-issued gift cards and bank-issued gift cards that is not apparent to most consumers and possibly, some state regulators. While the majority of store-issued gift cards are devoid of fees, they do not carry all the rights and protection afforded to credit cards or offer the global acceptance of bank-issued gift cards. Gift cards issued by retailers are simply designed to be a loyalty product and to presell merchandise. By contrast, bank-issued gift cards are financial instruments. While banks receive some of the merchant fees generated from the card’s use, the administrative costs of issuing the card and providing benefits are generally recovered through fees such as processing fees, inactivity fees, replacement card fees, loading fees, etc. Several states are now in the process of trying to regulate these fees. A new report from TowerGroup says that such gift card regulations could stifle growth as many financial institutions simply could not afford to offer the product. TowerGroup expects bank-issued gift cards will evolve into an array of products that will be cobranded, reloadable, and will provide loyalty features not unlike those available to credit and debit cardholders. The report says that bank-issued gift cards are poised for the greater percentage growth over the next five years compared to retailer-issued cards, unless they are stifled with regulations. Gift card dollar volume was about $45 billion last year, a 50% gain over 2002, and is now projected to hit $90 billion by 2007.