Shoppers, particularly holiday shoppers, love eGift cards. Everything about eGift cards points to easy: easy to buy, easy to gift, and easy to redeem. For merchants, this all adds up to booming eGift card sales during holidays and special occasions such as Mother’s Day. However, for both merchants and shoppers, eGift cards can lead to an unexpected path of fraud, chargebacks, and loss.
According to ACI Worldwide, of all products sold by the merchants surveyed, eGift cards were the largest target of fraud between Black Friday and Christmas in 2015. ACI Worldwide reports that 9.5% of all fraud attempts during this period were on eGift cards.
Couple this statistic with recent research that points to the popularity of eGift cards, and merchants need to start paying attention to this commonly overlooked fraud scheme. Survey research done by CardCash, a gift card retailer, highlights that 73% of surveyed consumers plan to purchase a gift card during the holiday season. In addition, the same survey highlights that eGift cards sales are expected to reach $14 billion in 2017.
On one hand, this adds up to a very profitable time for merchants, but on the flipside, it heightens the need for merchant attention to eGift card fraud. It’s critical that merchants do not overlook the hidden impacts and costs of eGift card fraud.
The Costs of eGift Card Fraud
Merchants should remember these eGift card fraud costs when planning for a successful holiday sales season:
- Chargebacks. Every dollar lost through chargebacks can cost merchants up to $2.82 in lost time, merchandise, and fees/penalties. These chargebacks can result in higher processing fees and risk of enrollment in credit card chargeback monitoring programs.
- Stolen merchandise. Innocent customers purchase fraudulent eGift cards and then use them to legitimately purchase merchandise. This is, in effect, stolen merchandise for which the merchant has no salvage method.
- Resource and time costs. Without the right solutions in place, merchants must spend time and resources on manual review of eGift card purchases, and in dealing with customer complaints from innocent victims.
- Brand reputation. Brand image and reputation is absolutely critical, particularly in the crowded CNP marketplace. Merchants whose customers are innocent victims of eGift card fraud are at high risk of brand damage and customer loyalty issues.
These costs cannot be ignored – think of the busy holiday sales season and how much success depends on these sales numbers. For customers who have been innocent victims of eGift card fraud, there is a reluctance to return to an honest merchant. For merchants who have been burned in the past by eGift card fraud, there is unease with selling eGift cards that can result in a higher decline rate of honest customers.
How eGift Card Fraud Happens
The extra twist to eGift card fraud is within the secondary marketplaces for eGift cards. These secondary marketplaces allow customers to buy eGift cards from a wide range of merchants, and for customers to sell their unwanted eGift cards. Hackers love these websites and make them a primary target during the busy eGift card season.
Using data from these secondary marketplaces and other fraud tactics allows fraudsters to turn eGift cards into lucrative money-making schemes.
- Secondary marketplace theft. Fraudsters use stolen credit card details to purchase eGift cards. These eGift cards are then resold on secondary marketplace websites to innocent shoppers. This is the multiple whammy effect of eGift card fraud that makes it so costly for merchants. Credit card holders are defrauded, shoppers are defrauded, merchants are defrauded, and the eGift card recipient is defrauded.
- System overload. The holiday sales season means merchant websites and apps can be overloaded with traffic. This makes it easy for fraudsters to expose system vulnerabilities and to slip through the cracks. Fraudsters wait for busy sales periods to attack merchant websites – often never being detected.
- Card testing. This is a common tactic that is particularly effective for eGift card fraud. Fraudsters buy stolen credit card details on the Dark Web and then test these details with small eGift card purchases. The cumulative costs of these small purchases add up when a merchant is repeatedly attacked.
Along with awareness of these specialized eGift card fraud tactics, merchants need to be ready for common fraud tactics, including phishing, account takeover, database hacking, brute force attacks, device switching, and bot attacks.
Winning the Holiday Sales Season
Merchants should not stop selling eGift cards out of fear of fraud and chargebacks. Also, be guarded about becoming overly rigid with your approval and authorization of eGift card purchases. You’ll end up losing customers to your competitors, or worse, to secondary marketplaces which can result in even more risk to you.
The smart approach to protecting yourself and your customers from eGift card fraud is with a multi-layered fraud detection and prevention strategy. Just as the criminals use multiple tactics to steal from you, you need to use multiple tactics to stop and prevent this theft.
This cannot be left to chance or to next year. If anything, we want you to understand how prevalent and damaging eGift card fraud can be. Please contact us to learn more about our solutions, such as Global Payment Gateway, and how we can get you ready for the holiday sales season. Don’t delay – the busy sales period is right around the corner.