Gift Card Fraud – An Evolving Landscape

Payments Leader

Posted on January 29, 2015

Internet crime and electronic banking security

 

When it comes to finding the perfect gift, more and more Americans are opting to let the receiver do the choosing. Gift cards have steadily climbed in popularity, especially during the holiday season and the trend is expected to continue. Unfortunately, while gift cards are creating big business for retailers, they’re also causing major headaches for both providers and consumers alike.

Attracting the Wrong Kind of Attention

Gift cards are huge money-makers with transcendent power. Easy to acquire and simple to use, digital gift cards are popular across virtually every age and demographic. According to the NRF’s consumer spending survey, men will spend about $171.35 each on gift cards, while the average woman will spend approximately $155.42. All said, this will result in billions of dollars in profits for American retailers. With these big profits, however, comes unwanted attention from criminals who are putting a number of kinks into this lucrative phenomenon.

Fraud on the Rise

According to Forbes Magazine, of the $200 billion in prepaid card purchases made in 2014, a quarter will be attributed to gift cards. That’s a big number that makes these payment options a major target for fraudsters. While gift card fraud is nothing new, evolving tactics have made things much harder to control. These days, criminals go after gift cards in a variety of ways. Sometimes they simply purchase gift cards using stolen credit cards. Other times, they will lift a card’s magnetic stripe using a scanner and then repeatedly check online to see when it’s been activated. Some fraudsters will even brazenly pose as a representative from a retailer’s central office, call as an employee and instruct them to activate a card, load it with value and provide identifying numbers. More often than not, however, the main culprits are the employees themselves. In fact, retailers report that employees are responsible for 62 percent of gift card fraud.

The Digital Effect

While traditional gift cards continue to grow in popularity, digitally formatted cards are also enjoying increased use. According to research from the prepaid product and transaction services company InComm, 88 percent of consumers said they were likely to buy at least one gift card from a mobile app or website this past holiday season, with 77 percent likely to buy a minimum of one digital gift card. InComm’s study also showed that four in ten respondents preferred the convenience of having a digital gift card scanned from their phones rather than having to carry an email printout to a store.

In response to data like this, many retailers have augmented their in-store gift card selection by allowing customers to easily buy both physical and digital gift cards from their desktops and mobile devices. Still, while this strategy allows gift card providers to expand their markets, it also opens the door to even more sophisticated types of fraud involving an assortment of evolving criminal tactics. Based on increased fraud, several banking industry giants are limiting the breadth of digital certificates, setting up stricter thresholds or completely getting away from them. Will this trend continue? Will the fraud be better mitigated?

Despite all the difficulties surrounding gift cards, they remain an extraordinarily lucrative payment strategy for both major and specialty retailers. To get the most benefit, however, providers will need to continue investing in next-generation security technology to stay ahead of next-generation thieves.

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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.