By Monica Eaton-Cardone, COO and Co-Founder, Chargebacks911

As we begin to emerge from the COVID-19 pandemic, many businesses may look back and struggle to see many positives that arose from it. But any ecommerce merchant can testify to the increase in traction when it comes to online sales. In fact, a recent survey found that people are spending up to 30% more online, on average. Understandably then, merchants are continuing to invest in online shopping and payment methods that appeal to their expanded digital consumer base.

One such method is the use of gift cards, which, incidentally, are expected to rise in use from roughly $163 billion in 2019 to over $221 billion by 2024. A convenient form of remote gift giving for both the receiver and the consumer, gift cards can be purchased and delivered without ever stepping foot in a store, helping businesses achieve social distancing measures. Reasons consumers gave for favouring the payment method in a 2018 survey include being able to let the recipient choose their own gift (50%) and enjoying the ease of purchase (25%).

The consumer response to gift cards

But as with anything that experiences a boom, there are drawbacks to the use of gift cards for merchants. This is because some of the features that make them so appealing to consumers are also those that make them easy tools to use for fraud. They are easy to acquire, easy to cash in, easy to spoof, and virtually untraceable.

Yet, with consumers opting to purchase gift cards in our digital age, especially as they continue to avoid meeting recipients in person to celebrate special occasions, there is plenty of opportunity for gift card fraud to occur.

Still, some consumers are also approaching the use of gift cards with trepidation. This is in response to certain store closures, as a result of the Covid-19 pandemic, making gift cards unusable. Debenhams, for example, announced in December 2020 the closure of 124 stores across the UK. But that doesn’t mean merchants can relax their security measures when it comes to the risks associated with gift cards.

The fraudulent potential of gift cards

Utilising gift cards is an attractive method of fraud for a multitude of reasons. They seldom include personal data that could link them to the legitimate purchaser or recipient and all that is needed 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.

The impact on merchants can hit in a variety of different ways. For instance, account takeover (OTA) can 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, while digital or electronic gift cards are convenient for merchants and consumers, the fact that they are intangible means they can be fraudulently sold and converted to cash even more quickly.

This is all without mentioning the risk of fraudsters gaining access to a merchant’s database of available card numbers. Should this happen, merchants could be stuck honouring an untold number of cards that were never purchased.

Perpetuating the chargeback problem

When it comes to gift card fraud, it isn’t solely about protecting consumers and a business’ reputation. It can become costly for merchants as customers are more likely to instigate chargebacks to reclaim funds lost to it. If this issue is left unaddressed, it can leave companies refunding purchases, paying processing fees and losing disputed goods – in this case, purchased gift cards.

What’s more, mitigating chargebacks is now more important than ever. The growth of ecommerce throughout the pandemic has meant that there is much more scope for problems to occur with orders and deliveries, resulting in chargebacks associated with merchant error. Simultaneously, friendly fraud (fraudulent chargebacks) is much easier to instigate for ecommerce purchases as customers can claim that packages were damaged upon arrival or didn’t arrive at all. As a result, some industries are facing 10 times the amount of chargebacks than prior to the pandemic.

Merchants aren’t powerless when it comes to gift card fraud

By giving up on gift cards, merchants and consumers stand to lose out. They are still a lucrative option despite their vulnerability to fraud. As consumers continue looking for convenient gift options it’s important that merchants find ways around the risks, so they can continue offering gift cards to customers.

But the process of mitigating gift card fraud can be somewhat complex. While retailers work to try to negate the effects of restrictions in place to curb COVID-19, they’re left with little time to manually review transactions for indicators of potential fraud, which can become another job in itself.

If merchants are struggling to combat risks associated with gift cards, my advice to them is to contact a third-party provider that specialises in reducing fraud and chargebacks. This will not only help them cut back on the number of fraud incidents occurring, but also the costs that stem from the associated chargebacks.

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

Monica Eaton-Cardone 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 GBP 100 billion chargeback fraud problem.

Monica is passionate about the need to educate merchants and financial institutions on risks that will only get worse if left unaddressed. 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.

About Chargebacks911

Founded in 2011, Chargebacks911 is the first global company fully dedicated to mitigating chargeback risk and eliminating chargeback fraud. As industry-leading innovators, the company is credited with developing the most effective strategies for helping businesses maximise revenue and reduce loss in a variety of industries and sectors within the payments space.

It provides comprehensive and highly scalable solutions for chargeback compliance, handling services and fraud strategy management. The company helps decrease the negative impact of chargebacks, thereby increasing revenue retention to help ensure sustainable growth for every member of the payment channel.

Chargebacks911’s unparalleled category experience and Intelligence Source Detection (ISD™) technology help identify the true source of chargebacks, optimising revenue recovery opportunities, mediating disputes, safeguarding reputations, and proactively preventing future fraud.

chargebacks911.com

About Fi911

Fi911 supports financial institutions with innovative back-office management technologies created specifically for the banking and payments industries. By offering direct communications between FIs and their ecosystems, the company’s scalable payment product suite offers features that range from fast, flexible merchant onboarding to highly transparent, feature rich client portals and dispute processing.

Fi911’s proprietary DisputeLab™ helps make resolving chargeback disputes faster and more efficient by optimising each step in the dispute cycle. The company’s unified platform also provides threat detection, reconciliation, and risk management tools, as well as the ability to generate commissions and ISO pay-outs directly through the system.

Established by the dispute experts at Chargebacks911®, Fi911 offers global reach and expertise, as well as customised training and support from recognised industry leaders. fi911.com