Presented by: Chris Uriarte, Retail Decisions Dan Horne, Providence College
Prepaid Card Fraud:Understanding the Problem, Designing a Solution
Prepaid Card Fraud: Agenda
Understanding the Pre-paid Market
Recent prepaid Trends and Statistics
Understanding Pre-paid Fraud
Recent Pre-paid Fraud Statistics
Best Practices for tackling Pre-paid Fraud
Prepaid Cards: A Lot has Happened Since 1992!
First studies of the gift certificate market
Recognition of 2 customers: Buyer/giver Recipient/redeemer
Understanding of the altruism in the gift Intimate giving Arguing over cheapening the gift through convenience
Understanding that many situations involve non-altruistic gifts
Key Attributes
Altruism
Relief of uncertainty
Convenience
Value
Control
Strong Attitudes
Source: Giftex Recipient Studies
80% of adults get gifts they do not want. - eBay 2008
Strong Attitudes
Source: Giftex Recipient Studies
Dual Benefit
Source: Giftex Recipient Studies
Cards Increase Merchandising Opportunities
The Times are Changing
The consumer’s bountiful choice environment– Traditional competition (every retailer)– Cross-category competition– Cross-industry competition– New entrants
Clutter– Changing Attitudes
Cross-Category Competition
Cross-Industry CompetitionSource: NBPCA/Giftex 2007 Study of Gift Card Buyers
Appreciate the Freedom Gift Cards Give
Technology
EGC (web codes)
Mobile
The path to loyalty?
Drivers of Gift Card Growth
Sales
SecurityRetail/Distribution
Cost/Fees
Appearance
Terms & Conditions
Overall Story
Growth Early 90’s to 2007
How Does this Affect Fraud?
The sale of pre-paid gift cards (virtual and plastic) is increasing significantly via major merchant websites: Top 5 item purchased at top major retailer websites
Credit and debit cards are the primary funding and purchase source for gift cards
Result: Fraud related to gift card purchases has jumped significantly in the last 18 months, to the point where gift cards are the #1 most fraudulently purchased item for many major retailers
Gift Card Fraud Rates: Three Top 10 Retailers
Virtual Gift Cards Plastic Gift Cards Overall Bankcard Fraud Rates
Fraud Rate: % of Transactions
% of Overall $ Value
% of Transactions
% of Overall $ Value
% of Transactions
% of Overall $ Value
Large Retailer “A” (Apparel, Home Goods)
0.80%[1.50%]
1.00%[1.70%]
0.03%[0.60%]
0.03%[0.90%]
0.16% 0.34%
Large Retailer “B”(Mixed Retail)
4.10% 10.6% 2.10% 3.05% 0.41% 1.30%
Large Retailer “C”(Mixed Retail)
1.70%[6.70%]
2.60%[5.5%]
0.70%[2.7%]
2.80%[2.6%]
1.5% 3.2%
• Gift Card Fraud: Defined as the fraudulent purchase of a virtual or plastic gift card
• Retailers displayed above have significant, established gift card programs
• Retailers profiled represent major North American retailers with total combined annual revenues exceeding USD $476 billion (2008)
Key:June – December 2009[January-February 2009]
The Lifecycle of Gift Card Fraud
Purchase of Gift Card (Plastic of Virtual) via merchant website using a fraudulent payment card
Sale of Gift Card via legitimate channels to legitimate consumers
Monetization of fenced goods or gift card sale
Use of gift cards to purchase fencible goods
Use of Gift Card at merchant website or in-store by legitimate consumer
Why Gift Card Fraud Is Attractive via the CNP Channel
Gift Card = Cash Legitimate resale markets exists that allow the
fraudster to easily unload stolen gift cards Chargeback delays (1-3 months) on fraudulent
purchase activity make it nearly impossible to turn off cards before they are used
Fraudsters know that, even if gift cards are linked to stolen credit cards, retailers can be hesitant to turn off gift cards at the fear of insulting legitimate consumers
Cross-channel buy/spend makes plastic gift cards easy to obtain and merchandise quick and easy to acquire
Fraud prevention systems operate in silos – merchant web fraud prevention systems/processes typically do not tie into private label or gift card systems
In The News…
This is What It’s Come To…
21
Source: ShopRite stores, New York City area, December 2009
Stories From The Field…
Increased evidence of targeted gift card fraud acquisition rings using compromised cards resulting from recent, massive data breaches (TJX, Heartland Systems breach)
– Specific compromises using entire BINs from Citibank and Chase
Funneling of gift card purchases through traditionally “safe” APO/FPO addresses and other addresses where Address Verification Services (AVS) are not supported
Automated “bot” or mass-purchase attacks, as evidenced by strange gift messages during checkout process
– E.g. “Good Day” or “Happy Day” , etc.
Use of “disposable” email domains during gift card purchase EASYLIVEMAIL.NET ZUNMAIL.COM BIGMAILONLINE.COM COLDMAILONLINE.COM MEGAPED.COM
So What Does This Mean?
The Good Existing fraud prevention systems and
techniques can be used to help prevent the purchase of gift cards using fraudulent credit cards
Specialized programs and strategies have been developed by fraud prevention analysts to minimize fraudulent gift card purchases
Merchants have successfully worked with fraud prevention vendors, gift card program providers and merchant acquiring banks to reduce losses
The Bad & The Ugly Many merchants do not have robust,
dynamic website fraud prevention systems in place today or don’t understand how to address the problem
These strategies must be extremely dynamic and require a lot of “care and feeding”. Fraudsters are actively targeting anti-gift card fraud prevention strategies
There are no comprehensive end-to-end gift card purchase fraud prevention systems in place today, which track card acquisition and use through all phases of the lifecycle
Thank you!
Please feel free to contact us with any questions:
Chris UriarteCTO, Retail [email protected]
Dan HorneGlobal Prepay Exchange/Providence College
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