By Monica Eaton-Cardone
Chargebacks911
With brick-and-mortar retail still very much feeling the effects of the COVID-19 pandemic, retailers are continuing to invest in digital shopping methods and ways to meet consumer demand without having to rely on footfall. Consumers, it seems, have thoroughly embraced this shift into the online space – with a recent BIG Commerce survey (bit.ly/3s4PpEW) finding that people on average are spending up to 30 percent more online.
Alongside this ecommerce boom, the use of gift cards is expected to increase from roughly $163 billion in 2019 to over $221 billion by 2024, according to reporting from Research and Markets https://bit.ly/31Z3rNO). Gift cards can be purchased and delivered without ever stepping foot in a store, and provide extra layers of convenience for both the gift receiver and the consumer, 50 percent of whom enjoy letting the recipient choose their own gift, according to a consumer survey conducted by CardCash, and 25 percent of whom enjoy the ease of purchase (https://bit.ly/3uAbTzr).
Despite the earning potential associated with gift cards, retailers should be wary, as some of the features that make them so appealing to consumers are also those that make them easy tools to commit fraud with. This is only exacerbated as consumers continue to consider them the gift of choice as they avoid meeting recipients in person to celebrate special occasions.
However, the COVID-19 pandemic has not just forced merchants to adapt in response to lockdown restrictions, but it also has unfortunately forced the closure of certain brands that couldn't survive the economic hit. Debenhams, for example, announced in December 2020 the closure of 124 stores across the UK.
Inevitably, this has caused some consumers to approach purchasing gift cards with greater trepidation than before, as they assess the risk of store closures making gift cards null and void. However, this doesn't mean businesses should be letting their guards down when it comes to the risks associated with them.
Just because consumers might be growing increasingly wary of purchasing gift cards doesn't mean fraudsters are. Gift cards are easy to acquire, easy to cash in, easy to spoof and virtually untraceable. They seldom include personal data that could link them to the legitimate purchaser or recipient. All that is needed to commit fraud is the account number and the funds are available. Alternatively, gift cards can be bought online using stolen credit card information and resold for cash.
Ultimately, gift card fraud can impact merchants in a variety of ways. For example, methods include account takeover, which can also result in fraudsters gaining access to multiple other connected accounts. Loyalty and rewards accounts are also popular targets, as the accrued points can be easily converted into gift cards.
And different types of gift cards make it easier to commit fraud. For example, digital or electronic gift cards are easy to use and appealing for retailers, but the fact that the "cards" are intangible means they can be fraudulently sold and converted to cash even more quickly.
The risk is greater still if a merchant's database of available card numbers is breached. In that situation, fraudsters could gain access to more lucrative data than if the cards in question were physical cards, and the merchant could be stuck honoring an untold number of cards that were never purchased.
All this means that 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. This can be costly if left unaddressed. It can leave companies refunding purchases, paying processing fees and losing disputed goods – in this case, purchased gift cards.
Also, mitigating chargebacks is now more important than ever. With many merchants moving into the online space in response to COVID-19, there is much more scope for problems to occur with orders and deliveries, meaning that genuine chargebacks are more likely to take place. At the same time, friendly fraud (fraudulent chargebacks) has become much easier to instigate. As a result, some industries are facing 10 times the amount of chargebacks than 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. Yet trying to mitigate the risk of gift card fraud puts them in a tough spot. Manually reviewing transactions for indicators of potential fraud takes time, and that's one thing retailers won't have as they work tirelessly to ensure their businesses continue trading seamlessly despite the restrictions in place to curb the spread of COVID-19.
Of course, the fact remains that gift cards are a lucrative pursuit for retail businesses. They can benefit merchants and consumers alike, and as a result they're not set to disappear anytime soon. Merchants just need to ensure that their businesses are protected from attempts to use gift cards as a method of fraud, so they can make the most of this profitable payment method. If they are struggling with this, their best option is to contact a third-party provider that specializes in reducing fraud and chargebacks.
Monica Eaton-Cardone, COO and co-founder of Chargebacks911, has worked for over a decade to educate merchants and financial institutions about hidden threats in the rapidly changing payment fraud landscape. Leading Chargebacks911, she established Europe's first chargeback remediation specialist to tackle the £100 billion ($137.42 million) chargeback fraud problem. She was one of the earliest and most vocal voices to warn of the hidden risks of friendly fraud, including how evolving consumer behavior has caused a perpetual cycle of rising fraudulent actions. Founded in 2011, Chargebacks911 is the first global company fully dedicated to mitigating chargeback risk and eliminating chargeback fraud. For more information on Chargebacks911 and the company's Fi911 back-office technology devised for the banking and payments industries, please visit https://chargebacks911.com.
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