January 11, 2005

Gift Card Fraud

Gift Card Fraud An Issue For Retailers To Address

The Detroit Free Press
Dec 23 2004 : While gift cards are a favorite gift choice of US consumers in the 2004 holiday shopping season, fraud is a growing concern with the rise of online gift card trading exchanges. In a case cited by Daniel Butler, a VP at the NRF, one US retailer tested 42 gift cards that were for sale at an online exchange, and found 22 to have a fraud connection. If gift cards are stolen or bought with stolen credit cards, retailers discover the link when the card is used in-store, but those accepting gift cards online as part of a multi-channel strategy, need real-time card validation to minimize fraud.

Just recently, a former Home Depot marketing manager admitted to selling, or intending to sell 2,375 stolen company gift cards on eBay, at a total of USD 269,350 between May 2002 and March 2004, after ordering the cards from Home Depot headquarters. Despite the potential for fraud, gift cards are positive for US retailers and accounted for almost 10 per cent of total retail sales at year-end 2003. Multiple gift card distribution channels such as kiosks, the Internet, malls and third party vendors made their first appearance in 2004 and will be important in future years.

Going forward, US gift card issuers are expected to investigate the UK and general European gift certificate market for future expansion now that most US retailers have gift card programs. Hong Kong based clothing retailer Esprit by contrast extended its gift card program, which originated in Europe, to North America, in September 2004. In the UK, where 26 of the top 35 retailers already issue paper gift vouchers in-store, according to First Annapolis, gift card solutions providers may find the market a hard sell until more UK retailers establish successful gift card programs.

Posted by Craig at January 11, 2005 02:31 PM