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The online gift card market is thriving. Ecommerce sales of gift cards are increasing by 29% YOY, and by 2018, the US gift card market is expected to be worth $160 billion, driven primarily by surging digital gift card sales.
Riskified’s work with Fortune 500 retailers who sell gift cards, as well as leading gift card-only merchants and P2P secondary gift card marketplaces, has afforded us enormous insight into the CNP fraud challenges facing gift card sellers. We have drawn on this experience to compile a report sharing data about fraud patterns in online gift card sales, and outlining best practices for anyone selling gift cards online. In this post, I share a few of the key findings that appear in the full report:
Retailers beware: Gift cards add risk to the mix
Gift cards have a unique risk profile, and on average carry more risk than other goods. Riskified’s data shows that adding a closed-loop (brand-specific) gift card to a shopping cart filled with other products negatively impacts approval rates across verticals. For instance, Riskified can safely approve 93.4% of online fashion orders that don’t contain a gift card, but only 82.3% of carts from the same retailers when they include both fashion items and gift cards.
These numbers reflect a common fraudster methodology: to fool fraud prevention systems and fraud review teams, thieves looking to steal gift cards will add a variety of items to the shopping cart – so that the order contains both “regular” goods and a digital gift card. The fraudster provides the actual cardholder’s billing and shipping address, but the digital gift card is delivered to the fraudster’s email. Retailers new to selling digital cards, who are unfamiliar with this modus operandi, often approve such orders based on the physical address match, while ignoring the email address, only to later incur costly chargebacks.
Holiday shopping mayhem
The spike in order volume around major shopping days can create real strain for fraud review teams struggling to keep up with vetting orders for fraud. Understanding the bigger picture of how CNP fraud manifests during shopping holidays can help fraud teams prepare for these periods, as well as benchmark performance after the fact. Riskified’s research shows that patterns of fraud in gift cards actually vary greatly between different shopping holidays.
The week prior to Valentine’s Day sees a 20% spike in the volume of legitimate gift card orders, but an even greater increase in the number of fraud attacks. In fact, the rate of CNP fraud attempts is 35% higher than average during this week.
In the week leading up to Mother’s Day, the number of online orders for gift cards increases by 35%. Gift card sellers should be able to achieve the same order approval rates as usual during this week, as the level of CNP fraud remains constant.
Finally, the last two weeks of the year, from mid-December through New Year, see a huge surge in demand for gift cards, with online sales increasing by 130% during this two-week period. Since there is a massive increase in the number of legitimate shoppers coming online to buy gift cards while the number of fraud attempts remains roughly constant, merchants can safely approve a higher percent of orders!
Download The Full Report
These are just a few of the insights included in our special report about CNP fraud in online gift card sales. The full report includes stats and tips on differences between closed-loop and open-loop cards, what the shopper’s email domain can tell you about fraud risk, how to view self senders of gift . For more insights and fraud prevention best practices, download a complimentary copy of the full report.