The last year has not been without its challenges for businesses across each and every sector. It’s not all doom and gloom, however.
The impact of COVID-19 has created significant opportunities for many ecommerce businesses. According to one study, consumers were spending 30% more online in the early months of the pandemic than they did previously.
What’s more, the rapid shift that many have taken into the online space has meant that customers are now more comfortable than ever shopping online – even those that previously weren’t – and ecommerce is likely to remain king. Consumers have had an opportunity to see the benefits of staying home and shopping online and they’re not going to give up those benefits even as restrictions begin to be lifted. This has led to retailers focusing on finding the best digital payment methods for their customers.
Gift cards have been a big hit since the high street was forced to close its doors in one way or another. The fact that they can be purchased online and used remotely is an undisputed advantage in our socially-distanced society. In a 2018 survey consumers attributed the purchasing of gift cards over other methods of payment to ease and convenience. Not to mention the fact that it enabled the recipient to choose their own gift. Consumers can still show loved ones they care, while retailers are able to make sales.
It should come as no surprise, therefore, that it’s predicted a staggering $221 billion is expected to be spent on gift cards in 2024 – a significant increase from the $163 billion spent in 2019.
Changing perspectives on gift cards
While the benefits of gift cards are clear there are still reasons for customers and merchants to be cautious.
In the last year, many retailers have been forced to close stores permanently because of the pandemic. This may be off-putting to some consumers who are looking for gift cards to spend in store. While COVID-19 continues to impact businesses, customers might be more careful about purchasing cards that may not be used by the recipient for several months.
For merchants, it’s the ability to promote their ease of use that makes gift cards so attractive – but this is also what makes them perfect tools for fraud. They are easy to get hold of, easy to use and difficult for anyone to trace.
How gift card fraud can occur
Gift cards have several qualities that make them an appealing fraud method. All someone needs is the account number and the funds become available to them. Account takeover (OTA) can also result in multiple related accounts being accessed, significantly increasing the damage to a retailer.
What’s more, gift cards can easily be purchased online and resold and rarely contain any data relating to the purchaser or the recipient of the card. Fraudsters might also target a merchant’s reward accounts and convert points into gift cards to cash in.
An even bigger risk to merchants is the possibility of fraudsters accessing their database of available gift card account numbers. If this was to happen, they could be left accepting an untold number of gift cards that were never purchased.
The increased risk of chargebacks
If merchants don’t address gift card fraud, then it may be more than just their customers or reputation that is put at risk. Customers that lose money to gift card fraud are more likely to instigate chargebacks to retrieve their money. This leaves retailers paying processing fees and making losses on disputed gift cards and gift card purchases.
It has never been more important for merchants to work to prevent chargebacks from occurring. With more people shopping online during the pandemic, there comes with this an increase in probable delivery issues. There is also more chance of friendly fraud occurring when customers can claim that products were damaged upon delivery or didn’t arrive at all.
Gift cards can still work for merchants
Like any payment method, there are issues that make gift cards vulnerable to fraud. However, they still promote brand loyalty and convenience for customers, and remain a popular choice at the checkout. There’s no need to give them up entirely.
Managing and reviewing gift card purchases and transactions for signs of fraud is complex and can take up significant amounts of time for a business. My advice to retailers who need a way to minimize the risk of gift card fraud would be to find a third-party provider to help them. This will not only help reduce the amount of gift card fraud that is taking place but will also help reduce the number of associated chargebacks.