As Black Friday approaches this week and Christmas shopping activity ramps up, Aviram Ganor, General Manager EMEA at Riskified, writes for Payment Expert on why gift cards are the number one target for fraudsters this holiday season.
If some research is to be believed, up to three quarters of UK consumers will have already begun their Christmas shopping by September, meaning the UK has the most excitable (or impatient) Christmas gift buyers in Europe, and by quite some margin.
But whilst starting early may seem like an organised strategy, many shoppers are unaware that one of the country’s favourite Christmas gifts might be exposing them to a significant risk of retail fraud.
A risky last minute gift?
Despite a reputation for being a rather last-minute present, gift cards actually top the wish list for financial Christmas gifts in the UK. They offer all the flexibility of receiving cash whilst also having at least a small layer of personal thought. But just as gift cards are becoming increasingly popular with consumers, they are also attracting the unwanted attention of fraudsters.
In fact, gift card fraud is fast emerging as one of the most significant threats in the world of retail cybercrime, with recent Riskified analysis showing that the risk of fraud associated with gift cards across industries is up to seven times higher than it is with other payment methods. But just what is gift card fraud, and should we all be thinking twice about picking up that voucher for our nephew this Christmas?
Flexible fraud
Put simply, gift card fraud is any type of illegitimate activity that involves cards, whether as a product or a payment method. Fraudsters in this space exploit gift cards in a variety of ways, including by tricking unsuspecting consumers into buying empty gift cards that have already been activated, to victims being tricked into sending a fraudster details of a gift card which is then drained.
A popular scam includes fraudsters stealing gift cards by adding a variety of items to the shopping basket of a hacked online retail account, with both regular goods and a digital gift card; the fraudster provides the actual cardholder’s billing and shipping address to avoid detection, but the digital gift card is delivered to the fraudster’s email.
But why are fraudsters using gift cards at all?
The answer lies in the fact that gift cards simply aren’t like most other products. They have their own rules and behaviour across both legitimate and fraudulent purchases, which make them an almost perfect tool for fraud: for one, the transactions are largely irreversible, and so once the scam is complete, it is essentially impossible for a victim to get their money back.
There are no personal details involved and it is primarily an anonymous payment method, allowing fraudsters to bypass classic stumbling blocks that catch out more traditional scammers, such as address verification for delivery or the traceability of bank account information.
Who’s at risk?
Given all of the above, the prevalence of gift card fraud means that anyone could be targeted. For retailers who sell gift cards, it’s worth keeping in mind that the bulk of fraud, around 40%, falls into the electronics sector due to the high value of physical goods that can be acquired with gift cards in that market.
For obvious reasons, another telltale sign of gift card fraud is high value transactions, with gift cards worth over £200 being the most popular targets for fraud. In terms of age, consumers over the age of 60 are particularly at risk, as they are targeted due to perceived naivety, fear of technology, and assumed good credit and savings.
Interestingly, those between the ages of 18-29 are also risky, likely due to not having sufficient awareness of potential risks.
So, gift card fraud has a few telltale signs, but how exactly can consumers avoid these scams and stay safe?
Staying safe
With the variety of forms gift card fraud can take, staying safe as a consumer can prove tricky.
Whilst employing common sense over requests for payment of official bills with gift cards will help avoid some of the more rudimentary forms of this scam, the characteristics of gift card fraud means it can be tough to properly detect, and subsequently recover from more advanced forms.
For merchants in particular, detecting gift card fraud is tough for two main reasons: the first involves data gaps, meaning that for an online gift card sale, merchants have fewer data points to reference for fraud detection because there’s not necessarily a shipping address involved. Once sent via email, the card is instantly redeemable, so there’s little chance it can be reviewed or cancelled.
Second, it’s difficult to detect fraudulent patterns in gift card sales: once fraudsters see that their gift card purchase attempts are successful, they will often place as many orders as possible in a short period of time until they are caught and blocked, resulting in massive fraud chains.
This pattern doesn’t always have been fraud, though – many legitimate customers may spend thousands of pounds on gift cards in rapid succession to take advantage of “points boosting” or other promotional offers. Sorting legitimate from illegitimate transactions, therefore, is particularly difficult.
Merchants to the rescue?
So just how can merchants be more alert and play a role in combatting this growing segment of fraud whilst still benefitting from an ever-popular gift?
As mentioned previously, the digital nature of gift cards means fraudsters can generally skip more traditional fraud detection, so merchants can’t rely on their existing systems to combat this type of fraud.
In fact, when it comes to chargeback patterns of digital gift cards, merchants can expect a gift-card related chargeback to appear in half the time of physical goods. The seasonality of gift cards, and therefore chargebacks, presents an extra problem for retailers – particularly over the holiday seasons.
To continue to benefit from selling gift cards whilst also playing their part in combating fraud, retailers should look at technological solutions with strong digital detection capabilities to detect patterns of fraudulent behaviour in real time and stop it in its tracks.
By investing in anti-fraud technology, which also has the capacity to adapt to changing consumer behaviours in real-time, retailers can stay one step ahead of fraudsters, protecting both their bottom line and consumers.
With Christmas shopping already picking up, gift card fraud could prove to be one of the biggest fraud risks of the next few months. By being aware of the danger and taking action, shoppers and retailers can stay one step ahead of this growing segment of retail crime and keep safe as they finalise this year’s stocking fillers.
