Why digital gift cards need to be protected from online fraud
Online fraud is everywhere and digital products, such as e-gift cards, are the first to bear the cost. Without a fraud protection system or minimum security, digital gift cards are more hackable than any other product. During the holidays, 1 attempted fraud out of 10 was linked to digital gift cards.
Digital gift cards are gaining ground among brands. They are a new customer acquisition tool in addition to boosting loyalty programs. With a global year-to-year growth of more than 20%, digital gift cards work as well in B2C as in B2B. But if we take a closer look, many online gift card programs have no fraud protection system whatsoever. However, it is vital nowadays considering how many fraudsters’ set their sights on them.
How come digital gift card fraud is so simple?
Digital gift cards are fraudsters’ favourite target due to how easy they are to steal. In the United States, fraud represents a loss of 1 to 4% of the industry’s revenue every year. And the icing on the cake, they can easily be spent or turned into cash to line malicious people’s pockets. It is a recipe to attract fraudsters. *CNP figures 2020
Immediacy
First and foremost, we should consider their immediacy. Just like any other digital product, e-gift cards are instantly created and sent to the recipient. It’s a matter of seconds, and leaves little time to analyse potentially suspicious behaviours. They are completely different from all the other products undergoing a much longer process, during which we have time to track down fraud. When it comes to digital, everything is faster. It implies on-the-spot decision-making, and fraudsters count on it to get around brands’ control.
Little chance of getting caught
Immediacy is already a great way to avoid getting caught. But fraudsters have another trick up their sleeves. It’s incredibly easy to steal hundreds of gift cards in just a few hours, even thousands if they use an automated software. Therefore, they only buy gift cards with a small amount of money, which are more difficult for brands to track. That way, they are sure not to attract the monitoring agencies’ attention.
Easily turned into cash
Let us not forget that the fraudsters’ first goal is to fill their bank accounts. With e-gift cards, it’s never been easier to turn digital products into cash. They have two options: Criminals can promptly use the card in one of the brand’s store. All bought products will then be sold on other specific websites, and the money will go directly into the fraudster’s pockets. They can also sell the gift cards straight away on peer-to-peer networks. They resell them at a lower price than their face value, buyers can purchase their favourite brands’ gift cards at competitive prices. In any case, even if the fraudsters sell the stolen gift cards at 80 or 90% of their actual value, they always come out as winners. This option is the most popular in the United States, but it is less used in European countries.
Risks for brands
Brand image
Quite frequently, digital gift cards are bought with stolen credit cards. In 2018, credit card fraud increased by 18.4 % and it is still climbing.* In Europe, and France more particularly, phishing is very common. Who can say they have never received a suspicious email from their bank or their internet provider asking for their bank details? According to Phishing initiative, in 2015 no less than 2 million people were victim of these types of attack. And brands are likely to suffer from it. *ShiftProcessing figures 2020.
Although nowadays, banks compensate victims of fraud under specific conditions, there are cases in which they don’t. Then, who will consumers turn to? Straight to brands, who have no choice but to grant their requests to avoid bad publicity. For unsatisfied customers, internet becomes an ideal playground, rightly or wrongly. Their weapon of choice? Aggressive comments on social media. They’re hastily posted and have significant results : according to a 2019 BrightLocal survey, 86 % of customers read online reviews before making a buying decision.
Costs
Any fraudulent activity is synonym of financial loss for brands. Before they have time to take notice, the fraudsters have already spent the card. And even if the card is blocked, the amount is already lost and the product sold. Liability shift is not applicable and brands always take the fraud’s costs and losses upon themselves.
Digital gift cards are an easy target for fraudsters. If a breach is found, fraud attempts will increase, brands will get into trouble and it will be too late to stop the bleeding. That is why brands must implement fraud protection programs to prevent malicious activities. That way, they will cut down costs linked to online fraud and will better control their brand image.
