3 Ways to Prevent eGift Card Fraud

In the decade or more that I’ve been involved with preventing online fraud, it has become evident that even the online retailers that have fraud almost entirely in control still wrestle with losses on eGift cards.
Blockbuster Entertainment (anyone still remember video rental stores?) introduced the gift card in 1994 after the advent of color printers—making it much easier to counterfeit gift certificates. Gift cards became popular because they relieve the giver of selecting a specific gift, while avoiding some of the social constraints around giving cash. Other pioneering retailers, K-Mart and Neiman Marcus started using prepaid cards. At the same time, AT&T developed the prepaid phone card (anyone remember paying for long distance?).
Many retailers instituted a digital-only version once technology allowed this advancement, and because of the demand from last minute holiday shoppers. But along with speed and convenience, eGift cards also come with much greater risk than the physical goods retailers normally sell. If you’re a retailer, you probably understand both the pressure to help grow revenue, and the dangers of eGift card fraud.
eGift card transactions are more fraudulent than regular transactions for two main reasons:

  • They’re instantaneous. Legitimate and fraudulent purchasers expect to be able to redeem the eGift card immediately after purchase.
  • They’re more anonymous. Unlike a physical good that will be shipped, a consumer is not expected to provide much identity detail to a retailer when purchasing an eGift card.

These dynamics are coupled with the fact that most retailers are attempting to auto-review as many transactions as possible—and that manual review on eGift cards is time-limited due to aggressive service level agreements.
During peak seasons, retailers often increase their risk thresholds in order to get through the larger queue of orders. In other words, merchants end up approving more risky transactions that will likely result in fraud or chargebacks simply because they do not have the time to look at the same proportion of transactions they would normally review.
You know you can’t just cancel every single eGift card order. So what can you do? Start by implementing these three best practices to prevent eGift card fraud:

  1. Collect phone and email data on eGift card transactions for both the buyer and recipient. Through identity verification services like Ekata, you can increase your confidence in an order by using phone-to-name, and email-to-name verification for both buyer and recipient.
  2. Set review thresholds on the number of cards purchased, the velocity of orders going to a specific shipping address or email, and for certain sizes of orders.
  3. Sporadically revise your review thresholds: savvy criminals are able to reverse engineer your rules to figure out what orders you review and when. They are looking for the laziest, easiest to understand fraud rules. If yours are dynamic and precise, they will move on to easier targets.

Ultimately, eGift cards are very lucrative and consumers expect them to be an option on your site. If you are wise about how you review and approve these transactions, your business can enjoy the advantages without falling prey to fraud.
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