UNDERSTANDING BREAKAGE

Issuers of payment instruments, cards, certificates, points, accounts and the like typically book liabilities on balance sheets to reflect the items. As examples, when a gift card is purchased the card issuer books a liability to the cardholder. When a customer deposits funds with a bank, the bank records a deposit liability to the depositor.

On occasion the instruments and accounts and their related liabilities remain unused and become stale or abandoned. Unused stale liabilities are known in accounting language as “unexercised customer rights” and in common parlance as “breakage.” Breakage may be a source of revenue via methods including fees, expiration dates and an accounting technique known as derecognition.

Proper breakage management requires application of consumer protection laws, anti-money laundering regulations, unclaimed property laws, accounting standards including GAAP, SEC guidance, derecogntion, and tax regulations. It also requires proper breakage forecasting and analytics.

Card Compliant is a leading expert in breakage management including compliance with the rules and required analytics.