Fighting Gift Card Fraud
Last week I had a meeting with the Director of Loss Prevention at a leading retailer. I was giving him a brief walkthrough of the proposed payment processing process for the new OMS being designed for implementation. In course of discussion a few surprising statistics, on the extent of gift card fraud and how easily the scammers got away with it, prompted us to investigate possible loop holes in the whole gift card fulfillment and redemption process.
Scammers have moved on from the first generation frauds of skimming and duplicating gift cards onto using fraudulent credit cards to buy gift cards through bot rings and exploiting the lack of multi channel coordination between online and stores to do double buys on same gift cards. Ever since gift cards were introduced, they have been an easy target for fraud for multiple reasons such as:
- Retailers treat it as cash and it gets redeemed immediately
- Can be bought through internet and be shipped to a forwarding address. Virtual gift cards increase the exposure even further as there is no physical fulfillment involved
- Viable resale market for stolen or fraud gift cards
- Multiple payment processing rules for online and stores create fraud windows that are easy to exploit in today's mobile commerce world
- Fraud prevention systems are still not integrated for all payment methods, specifically gift cards
- Gift card fulfillment and redemption management is often outsourced, leading to vulnerability to fraud due to insufficient tracking of card acquisition and usage in the card lifecycle.
Most of the above loop holes can be plugged through retailer's internal efforts of building a common platform for payment processing that would reduce the fraud window due disconnected channels. However the last two factors were the one we thought as something that requires a concerted effort from major retailers, stored value card companies and fraud prevention product developers to integrate a robust gift card fraud prevention framework into the gift card acquisition and redemption lifecycle. On toes of recent introduction of virtual gift cards by a leading retailer, if you are considering adding those to your payment methods and SKUs, do take out sometime to revisit and reconsider it as an opportunity to invest in a superior and integrated fraud prevention system for your multi channel endeavor.