How to Avoid eGift Card Fraud

Having an eGift card program is one of the best ways to foster a loyal user base and ensure repeat customers. A great aspect of eGift cards is that they generate cash flows in advance for merchants that are used against future purchases. The third great benefit to point out is that customers using eGift cards are often prompted to spend more.

Given these benefits, business owners are increasingly looking to adopt eGift cards to leverage their utility and preference among customers. eGift cards and traditional gift cards are expanding at a rapid pace given this popularity and are expected to grow to more than $200 million in sales by 2024. However, given the popularity of eGift cards, they are also ripe for criminal activity targeting unsuspecting consumers with a variety of fraudulent activities, costing both businesses and their customers.

Below we look at what is eGift card fraud, various types of frauds it can include, their impact on businesses, and what merchants can do to protect themselves against eGift card fraud.

What is eGift card fraud?

Fraudulent activity for eGift cards can occur in several ways. One of the most common is when a nefarious actor uses stolen credit card data to purchase eGift cards and then resells those to eGift cards to unsuspecting consumers. They can also use the eGift cards themselves to then make purchases of small or big-ticket items and then sell those items instead.

Why do eGift cards thrive?

The reason why eGift cards are targeted is that they are not associated with any specific individual. A person can purchase as a gift for someone else, so it can be impossible to trace back to fraudulent activity or use it to pinpoint the criminal behind the transaction.

Another reason why eGift flourish is because there is no regulation or even a regulatory body focused on preventing such fraud and protect consumers as there are with credit and debit cards.

The types of eGift card fraud

Below are some common scams that criminals may use to carry out eGift card fraud.

  • Refund via a gift card – Criminals may have used stolen credit card data to purchase items that they subsequently return and try to get the refund in the form of an eGift card.
  • Stolen eGift card numbers – Another way is to get eGift card data illicitly from the gift card owners, either the business or the consumer, via malware, phishing, brute force attacks, and social engineering.
  • Buying the eGift card with stolen credit cards – This form of eGift card fraud is straightforward. Scamsters simply purchase eGift cards using stolen credit cards and offload them to consumers before the fraudulent transactions are flagged and charged back.
  • eGift card account hacking and takeover – This is when a nefarious actor hacks a customer’s account that may have an eGift card account balance. If the account has a balance, it can be stolen or used for authorized purchases.

Customer accounts keep eGift card balances safe. Consider this scenario: A bad actor purchases stolen credentials to access a customer account. If that account contains an eGift card balance, the bad actor can easily steal those funds. When discovered, the frustrated customer may abandon the brand. An effective account takeover protection solution can identify risky and safe logins in real-time. The solution protects customer information, and it keeps customers coming back for the next purchase.

Chargebacks and other impacts

In the event of frauds involving stolen credit cards, the credit card owners will eventually flag and report illegitimate transactions, resulting in a chargeback.

Not only are merchants hurt from the lost sales, but the impact of chargebacks is also much ghastlier. Merchants are hit with payment processing fees on the original fraudulent transaction, plus fees assessed for chargebacks once the transaction is flagged as fraudulent.

Then merchants face reviews to weigh whether they should be considered high-risk merchants based on increased chargeback activity. Although one-offs don’t have that much of a lasting impact, if your business becomes a favorite for fraudsters for such activity, a high-risk classification can result in significantly higher payment processing fees.

Tips for Merchants

There are several ways merchants can mitigate the risk of eGift card fraud. Below are some of the ways businesses can protect both themselves and their customers.

  • A Strong Policy – Merchants need to implement a strong policy in gathering data on eGift cards and register it to dedicated users or recipients.
  • Strong Verification – Merchants can also implement strong verification tools for online transactions. They can require CVV verification, 3D security, etc. to ensure all credit card details are available to avoid fraudulent credit card transactions.
  • Account hacking defenses – Merchants should find ways to defend against account hacking of eGift cards. There are ways to protect by looking at the origin or the login and if that is consistent with historical login attempts. There are software tools that utilize artificial intelligence and machine learning to implement these protections in real-time to flag unscrupulous behavior.

eGift cards have been very popular and are exceeding lofty targets ascribed to their growth. eGift cards are a great option among consumers to slowly save for purchases or use them as gifts. They offer great benefits to merchants such as providing cash flows in advance against future purchases, the loyalty of repeat customers that have committed money to future purchases, and an increased likelihood they those customers will spend more than the amount of their eGift card.

But businesses need to be vigilant of the various fraudulent activities that eGift cards may be susceptible to protect against loss of business and loyal customers.

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