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CHARACTERISTICS OF A SUCCESSFUL PAYMENT METHOD: SECURITY
Pig butchering scams, which involve a scammer earning a victim’s trust to take advantage of them financially, can be a major manifestation of gift card fraud. Considering many of these schemes involve gift cards purchased in-store, it is arguably a form of in-store gift card fraud. This type of fraud is further discussed in the card-not-present section below.
How many victims are involved in gift card fraud? If a fraudster “brute forces” a gift card balance checker on Merchant A’s website and finds an active gift card, they can then load those physical gift card funds into a digital Merchant A wallet/account ($25) and then sell it to someone for $10. Assuming Merchant A detects or is made aware of the fraudulent activity, they zero out the remaining balance on the stolen card. In this example, the total losses from gift card fraud (closed loop, bought from the merchant) are much larger than the initial cost of the card.
VICTIM ONE The first victim is the person who is the true gift card holder; they don’t have their funds on the physical card anymore and they need to be compensated.
VICTIM TWO The second victim is the person who bought the digital account for $10 expecting to be able to buy $25 worth of goods or services from Merchant A.
VICTIM THREE The third victim is Merchant A who may also be out the goods, and possibly also receive a chargeback from the original gift card holder, plus having to refund one or both consumer victims.
Lost/Stolen Fraud While counterfeit fraud is less common today lost and stolen fraud has continued to increase over the last decade. Looking at the share of transaction value, card-present fraud loss in the form of lost and stolen fraud has increased 3.18 basis points from 2009 to 2021 in the U.S. according to a Federal Reserve Report. 17
U.S. Debit Card Fraud Loss As Share Of Transaction Value 18 YEAR Lost/Stolen Counterfeit
Card-Not- Present
2009
1.45 bps
4.29 bps
1.84 bps
2021
4.63 bps
3.39 bps
8.58 bps
Delta
3.18 bps
- 0.90 bps
6.74 bps
Table 1.1
Once a fraudster has stolen a card, the credentials have the potential to be utilized in both card-present and card-not-present environments. When a physical card is stolen, a fraudster can utilize the fallback transaction option at in-store terminals to commit card-present fraud.
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