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What’s the Risk of Selling eGift Cards?

posted on: Tue Sep 26 2017

Are you one of the 8 of 10 eCommerce businesses that offer digital gift cards?

If not, you should be. Digital gift cards are growing at an annual rate of 40%. Compare that to physical gift cards, which are growing at an annual rate of just 6%.

eGift CardsWhy the strong growth for digital gift cards? They’re easy to get, easy to give, and easy to redeem. Half of consumers appreciate the fact that gift cards let the person receiving the gift card pick out their own gift. And 25% of consumers prefer the convenience, saying that gift cards are easier to buy.

Those factors are also why eGift cards are so popular with fraudsters. That, and the widespread availability of secondary eGift card resale marketplaces that make it incredibly easy for fraudsters to turn any type of digital gift card into cash.

What’s more, record numbers of breaches—more than 1,000 breaches and 36 million records compromised in 2016 alone—have “weaponized” consumer data. Today, credit card accounts can be bought on the Dark Web for as little as $4. And the email addresses, billing addresses, phone numbers and other data associated with these accounts are widely and cheaply available. Fraudsters capitalize on these developments to easily and quickly steal hundreds of identities. Last year, 15.4 million consumers were victims of identity theft or fraud, an increase of 16% over 2015. Or fraudsters can use weaponized data to create synthetic identities—completely fictitious entities that combine real information, like a Social Security number, with fake addresses and other seemingly valid data in order to appear as real consumers.

Think about your upcoming holiday season. About 3 out of 4 consumers say that they will be purchasing gift cards this holiday season. And on average, they will purchase 2 or 3 gift cards. Criminals can easily mimic this type of normal behavior and blend in with legitimate holiday orders.

Using stolen credit cards, multiple identities, and automated fraud tools—also widely available on the Dark Web—a single fraudster can steal a couple of hundred eGift cards valued at $100 each in just hours without arousing suspicion.

  • Credit card charges will likely get authorized by the issuing bank.
  • No one “individual” appears to be buying more than 5 or so eGift cards per transaction.
  • $100 card amount won’t raise alarms during the holiday season.

The fraudster can then turn around and resell these eGift cards at a secondary eGift card resale marketplace for as much as 80 cents on the dollar, pocketing $16,000 cash in just a few hours. But here is the double whammy: online businesses not only get hit with chargebacks for the fraudulent transactions, but also have to honor the eGift cards when they are ultimately redeemed by consumers who purchased them from the resale marketplaces. Otherwise, the merchant risks bad publicity and outraged social media comments.

eGift card risk is further magnified during the holidays by the fact that there is a typical 45-day lag in chargeback notifications. Due to this phenomenon, fraudsters can spend almost all of November and December ripping you off before you start to see the chargebacks flooding in at the end of the year. By then, it’s too late. All you’re left with is a holiday hangover and a black spot on your holiday P&L.

Fortunately, enterprise-class fraud solutions like Kount Complete provide a multi-layered, integrated approach to fraud prevention that not only protects typical product transactions, but also eGift card orders, too. And the impact can be profound. For example, prior to implementing Kount, one company had completely eliminated selling eGift cards due to high levels of fraud. But after deploying Kount Complete, they not only resumed eGift card sales, but expanded them into 40 additional countries.

What are other risks associated with selling eGift cards? Download the e-book “eGift Card Fraud: The Gift That Keeps On Taking” to discover more vulnerabilities, like card testing and mobile channel fraud, and the 12 steps you can take to fight back.