e-gift card fraud slated to surge after shift to EMV
As the October deadline for the transition to the EMV chip and pin credit card system gets ever closer in the US, the industry consensus is that fraudsters will simply move online in greater numbers. Card not present (CNP) fraud, typically online or via call centers, where no card is physically seen by a merchant, presents less friction for the scammers.
And this is no idle threat. Past experience points to a transference of fraudulent activity away from an in-store point of sale terminal to the relative anonymity of the online world. In Europe and the UK in particular, CNP fraud immediately spiked following the transition to chip and pin card technology, which is something US based OTAs, airlines and hotel groups need to be braced for.
Many of the big players have already beefed up their fraud defences with multi-layer verification such as 3D secure payments but there are other areas which are more vulnerable. We have previously reported the ways in which travel loyalty programs are an easy target for fraudsters, and in many ways, it is a similar scenario with stand-alone gift cards.
The e-gift card market is worth an estimated $79 billion across all industries, and industry experts fear e-gift fraud will likewise skyrocket post-EMV due to the relatively lax controls currently in place. Once fraudsters get access to a stolen or skimmed credit card, the most pressing need is to monitize that card quickly.
Digital gift cards are an easy target as they can be spent virtually immediately or re-sold for hard cash on legal gift card swap websites. By the time fraud is detected, it is often too late. Surprisingly few companies have systems that can completely track a gift card’s activity – when it was purchased and whether the person using it actually made the purchase.
Southwest Airlines began selling gift cards nearly a decade ago and for the most part, relied on a manual monitoring system which only flagged fraud attempts over a 24-hour period.
"Fraudsters were communicating about the opportunity and we faced the risk of losing more than a million dollars a year. We were faced with the challenge of reducing potential fraud and reversing a growing chargeback rate back into our target range," said Brandon Adams, manager of ticketing operations.
"Consequently, fraudsters were able to leverage the 24-hour gap by booking and flying with a gift card that was purchased with a stolen credit card."
Southwest used its existing fraud management vendor Accertify, an American Express subsidiary, to implement real-time automated fraud-screening of e-gift card sales, in a similar way it does for conventional bookings made by credit cards.
"The tools were already in place, so it was just a matter of configuration to get these results" Adams said. This solution, Adams said, enabled the airline to identify gift card fraud in real-time and take countermeasures immediately.
The airline said it virtually wiped out gift card-related fraud within about five weeks while severely cutting down on staff costs due to the added automation.
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Editor for TravelMole North America and Asia pacific regions. Ray is a highly experienced (15+ years) skilled journalist and editor predominantly in travel, hospitality and lifestyle working with a huge number of major market-leading brands. He has also cover in-depth news, interviews and features in general business, finance, tech and geopolitical issues for a select few major news outlets and publishers.
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