Gift cards are popular with consumers, but more popular with fraudsters

gift cards fraud
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As we approach another holiday shopping season, merchants are filled with dread when they consider gift cards. Although gift cards are extremely popular with consumers, they are also a primary target of fraudsters. National Retail Foundation in 2019 found that 54% of consumers planned to give gift cards during the holidays. 

Digital Commerce 360 believes the reason for the increase in gift cards during the holiday season is clear: gift cards make easy gifts for hard-to-shop-for family members. But that also makes them a target for fraud. Gift cards are attractive to criminals for the same reason they are attractive to gift-givers: they’re easy. Criminals committing online fraud want to easily turn merchandise into money. This is also why electronics and not apparel is a common product category for fraud. Electronics are often high-value goods that have mass appeal, whereas apparel has to fit and is tailored to consumers with different preferences. Gift cards are the same.

An estimated 10-25% of fraud attempts on an online retailer’s website are to fraudulently purchase a gift card. Nearly half of online retailers in the Digital Commerce 360 Top 1000—48.5%—accept gift cards as an online payment method.

Retailers have already noticed a spike in gift card sales during the coronavirus pandemic, the holiday season is only going to make gift card sales grow even more. Merchants should be aware of the fraud associated with selling and accepting digital gift cards, and how to prevent it during these high-volume times.

Because they are anonymous, hard to trace, and not tied to credit card regulations they are vulnerable to attack. In fact, eGift cards have the highest fraud rate of all products sold by merchants.

The assault on gift cards is multi-faceted and can be either physical or digital in nature. Here are a few of the most common schemes:

  • Purchasing gift cards with stolen credit is the most widespread form of gift card fraud
  • Account take-over can lead to gift card purchase with a compromised ewallet or in exchange for stolen loyalty point
  • Refund fraud occurs when a criminal purchases items with stolen credit and then returns the items for gift card credit
  • Gift card number and PIN theft via brute force, malware, phishing, and social engineering attacks
  • Card tampering is an in-store attack where criminals harvest card numbers and PINs and then lay in wait until the cards are sold to consumers

There’s a lot at stake for merchants, not only in the form of lost inventory and revenue, but also in recognizing that compromised security creates a disastrous customer experience that is rarely salvageable.

How can merchants safeguard and grow their gift card business?

Leading fraud prevention solutions leverage artificial intelligence, machine learning, deep link analysis, consortium data, and analytics to pinpoints and isolate fraud while maximizing approved transactions. Criminals are frustrated without impacting good customers.

To learn how to stay one step ahead of the fraudsters, download the whitepaper here.

Related article: Six tips for safe online shopping during COVID-19 lockdowns

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