Gift Cards: Popular with Shoppers, Fraudsters

gift card feature

With COVID-19 restrictions easing in many areas, consumers and merchants are looking forward to a return of the in-store shopping experience. While brick-and-mortar retailers undoubtedly suffered a loss of footfall during the pandemic, ecommerce sellers enjoyed unprecedented sales gains as consumers flocked online. A recent survey from BigCommerce found that people on average are spending up to 30% more online.

Even as stores reopen, merchants will continue to invest in ecommerce and payment methods that appeal to their expanded digital base. This boom in ecommerce is being joined by a rapid rise in the use of gift cards, which are expected to increase from around $163 billion in 2019 to over $221 billion by 2024.

The ease and convenience of gift cards means they can be bought and delivered without ever needing to set foot in a store. A 2018 survey found 50% of gift givers enjoy letting the recipient choose their own gift, while 25% enjoy the ability to purchase that gift cards offer.

However, their convenience, ease of use and gift cards is also what makes them popular with digital fraudsters. Despite their earning potential, merchants need to be alert to these risks.

Why Gift Cards Attract Fraud

Fraudsters love gift cards because they only need the account number and the funds available to use them. The lack of personal data attached to the gift card helps the fraudster to evade being traced. Gift cards are also bought online using stolen credit card information and resold for cash.

Some types of gift cards make it easier to commit fraud, such as digital or virtual gift cards which can be fraudulently sold and quickly converted to cash. Loyalty and rewards gift cards which collect points are also attractive to fraudsters, as accrued points can be easily converted into gift cards.

Other ways these cards are targeted include account takeover, where fraudsters get access to other connected customer accounts. The risk is even greater if a merchant’s database of available card numbers is breached. Fraudsters could gain access to more than if the cards in question were physical cards, and the merchant could be stuck honouring an untold number of cards that were never purchased.

Taking Control of Gift Card Chargeback Fraud

Fighting fraud takes a lot of time and resources to cover all angles, and time-pressed merchants may not have the capacity to manually monitor potential fraud attacks. Not only do customers lose out when it comes to gift card fraud, but so do merchants, especially when customers instigate chargebacks to reclaim funds lost to it. Chargebacks are costly if left unaddressed, forcing companies to refund purchases, pay processing and penalty fees and lose disputed goods, including purchased gift cards.

Avoiding chargebacks is more important than ever, especially with the rise in ecommerce sales. There is now more potential for problems with orders and deliveries, meaning genuine chargebacks are more likely to take place. Also, friendly fraud or fraudulent chargebacks have become much easier to instigate. In fact, some industries are facing 10 times the amount of chargebacks than they were prior to the pandemic.

To stop chargebacks associated with gift card fraud, merchants must be able to prevent it from happening in the first place. Seek a solution that helps you identify and stop fraud and chargebacks, cutting down the number of fraud incidents and the associated costs.

Monica Eaton-Cardone is COO and Co-Founder of Chargebacks911