Fraud and E-Gift Cards: What You Can Do in November and December to Avoid a Chargeback Hangover in January

By Karisse Hendrick, Editor-at-Large, CardNotPresent.com

Gift cards have become the go-to holiday choice for the hard-to-shop-for family member or co-worker. E-gift cards that can be purchased, sent and redeemed immediately—increasingly on mobile devices—are even more convenient than traditional plastic gift cards. Unfortunately, fraud on e-gift cards may be more difficult to detect. If you prepare for the incoming storm of e-gift card orders and create a game plan to identify and prevent fraud, however, you may prevent a January chargeback hangover.

Understanding the Problem

According to Giftcards.com, electronic digital gift cards are the fastest-growing segment of the gift card industry, growing 29 percent annually. They are expected to make up 7 percent of the overall gift-card market by the end of 2016, accounting for more than $10 billion in sales, according to CEB/Tower Group. But, as popular as they are with consumers, they are just as popular to fraudsters. E-gifts are instant, no shipping address is needed, they can be easily transferred to others and there is demand for them in the secondary market, making them easy to monetize. With over 97 percent of all major retailers and restaurants selling their gift cards online, no company or vertical is immune to online gift card fraud.

According to a report by payments processor ACI Worldwide, across hundreds of millions of transactions, electronic gift cards have the highest fraud attempt rates of all products sold by their merchants. Between Black Friday and Christmas in 2015, 9.5 percent of all online fraud attempts were on downloadable e-gift cards. With so many holiday orders appearing risky because the shipping address does not match the billing address more often than normal, the risk of canceling a legitimate order, prompting a lost sale and unhappy customer, is greater than at any other time of year.

The Secondary Market Factor

Several secondary markets have emerged in the last few years enabling consumers to buy and sell gift cards at a discount. Some of these sites buy cards directly from consumers and resell them. Others take the form of


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