Selling gift cards online makes a lot of sense for many merchants, but criminals know that, too, and have quickly figured out ways to steal the cards. Now, as merchants have increased their sophistication in countering these thefts, so too have criminals figured ways to foil the merchants.
“Gift cards are a favorite thing for fraudsters,” said KC Fox, senior vice president of technology services at Radial Inc., a digital-commerce company based in King of Prussia, Pa. “They’re an easy way to get cash,” Fox said at the CNP Expo this week in Orlando, Fla., in a session about online gift card fraud.
Merchants know this, too. Broadway.com, which sells tickets online for shows in New York City and London, noticed sizable gift-certificate fraud about six years ago, said Paul Proia, senior director of fraud prevention at New York City-based Broadway.com. What quickly became evident is how quickly the gift certificates were being redeemed. After reviewing the redemption time, Broadway.com determined that, if a gift certificate was redeemed within 3.5 minutes or less, there was an 80% chance it was fraud, Proia said. “We had to change our documentation online that it would take longer to use the gift card,” he added. The terms of sale for Broadway.com’s gift certificates declare that certificates valued at $500 or more are not redeemable until 96 hours after the purchase.
The risk became so great for Petco Animal Supplies Inc. that it stopped selling physical gift cards online. It was too risky, said Chance Bowlin, director of loss prevention at San Diego-based Petco. “On the e-commerce side, we actually outsource our whole gift card program,” Bowlin said.
The relentless fraud and ever-changing criminal tactics frustrate many merchants. “The average retailer typically is ill-equipped to deal with the changing fraud environment,” Fox tells Digital Transactions News.
The latest major threat is account-takeover fraud. That is when a criminal, using valid stolen data about a consumer, gains access to an online account and masquerades as the legitimate consumer. Not only can the criminal make purchases using stolen card data, but he can also change addresses and other information.
Account-takeover fraud is pushing merchants to look for more ways to detect the true customer, whether it’s for gift card sales or other products. “Identity will be king,” Fox says. “Account takeover is plaguing the industry.”
One tactic that Broadway.com adopted is to apply the same fraud-checking rules it had for credit and debit cards to its gift card program, Proia said.
Merchants that choose to handle their own gift card fraud mitigation need to ensure their models incorporate the unique aspects of possible gift card fraud, such as multiple same purchases or delayed redemption, Fox says.
Another tip-off is frequent balance checking. “Not everyone who buys a gift card checks the balance every day, but the person who purchased it fraudulently does,” Bowlin said. The goal is to prevent the fraud.