General theft and deception schemes continue to be the leading form of prepaid card fraud, matching concerns addressed by consumers in Mercator Advisory Group studies. A recent theft of $1,000 worth of prepaid cards from a retail outlet in Michigan shows how criminals can easily swap physical cards. Jim Kasuba of The News Herald in Southgate, MI highlights an incident involving prepaid cards:
“Two thieves used classic techniques of deception, including creating a distraction and switching a valuable product for a worthless one, to steal two $500 prepaid Visa cards… The store attempted to cancel the two cards, but the cards had already been used to make a purchase elsewhere, for the full amount.”
Incidents like the one detailed in the article underscore both the strong ability of prepaid providers to combat fraud, as well as the critical need for personal awareness with any payment method. Prepaid providers operate with an extensive set of tools, policies, and procedures that allow them to control access to individual cards, protect large scale clients from cyber-criminal activities, and provide consumers with potential recourse into fraudulent use of prepaid card products.
What is incumbent upon both prepaid card issuers and retailers is to alert and educate both retail staff and consumers on the steps that can be taken to reduce these incidents, which have less recourse but represent more than 50% of all prepaid fraud activity according to Mercator Advisory Group’s most recent research.
Use of cash to purchase prepaid cards, especially general reloadable prepaid cards, represents a key value proposition of the cards, allowing for safe and reliable access to a multitude of retail options, backed by the card rails. With that comes the risk at transaction, that using cash for large prepaid card purchases in a deceptive manner leaves less recourse for the retailer. Small businesses in particular need to remain alter at potential large cash purchases, as Mercator’s Small Business Payments Insight’s Consumer Purchasing Options study shows that more than 60% of small business report seeing less utilization of cash for purchases. As scams like the Michigan incident show, the last step in preventing fraud within the prepaid space lies with the retailer during transaction, a step that the issuers can mitigate with education on crime prevention practices.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.