In an effort to curtail fraud, retailers are putting in place new rules like daily purchase maximums and cash-only sales policies that make it tougher for consumers -- and especially incentive program managers -- to buy gift cards in stores According to the Wall Street Journal,
chains including Kroger Co. and Safeway are now putting restrictions in place that require shoppers to buy gift cards using cash or asking that they show identification.
The new requirements come in response to new rules from the credit card industry, which went in to effect last October in response to requirement that credit and debit cards use computer chips that offer stronger security than the old magnetic strip. Retailers who haven't updated their checkout technology -- the deadline has passed -- to accept these "chipped" cards are now being held liable for any fraud-related losses connected to credit card purchases. Since criminals often use stolen credit-card data to purchase "open-loop" gift cards, which can be used like a regular credit card, retailers are attempting to protect themselves by refusing to allow shoppers to use credit cards to make gift card purchases. According to the Wall Street Journal
, Kroger is also limiting the number of gift-card purchases shoppers can make within a 24-hour period using credit cards.
This will greatly inconvenience the many managers and executives who run small to mid-size incentive programs with gift card awards by simply going to a local retailer's gift card rack to get awards, rather than purchasing them through the incentive industry channel. A good way to find these suppliers -- many of whom do not have minimum order requirements -- is the Incentive Gift Card Council (IGCC) website
The report also cites Greg Ferrara, senior vice president of government relations at the National Grocers Association (NGA), who told the Wall Street Journal
that smaller chains, which are slower to upgrade their checkout technology than the large retail brands, are also consider a revision to their gift-card buying rules. The NGA's members are "reporting a significant uptick in suspected fraud," according to Ferrara. According to the Nilson Report, this type of fraud contributed to $3.89 billion in losses in 2014 that had to be covered by the credit-card issuers.
"I had assumed that when credit card issuers begin to focus on chip technology, it would cause some problems for open loop cards," George Delta, legal counsel to the Incentive Federation
, told Incentive
. "As long as the banks were liable for any losses, merchants were happy to sell their cards no questions asked. Now that merchants would be liable for losses unless they have chip reading technology, the risk has shifted. The merchants that do not have such processing technology are being cautious for now."
But with that said, he added that he expects the new technology will have less effect on the incentive channel, since fraud is more typically an issue with smaller businesses and grocery stores, while most large chains have upgraded their payment processing technology.
"To the extent that those are the types of cards used in the incentive channel it should not have much of an impact," added Delta. "It might have some minor effect on open loop cards sold through the corporate/incentive channel because those cards are more likely to be the targets of fraudulent activity. All in all, I would not expect the effect of the new technology to be significant for the incentive channel."