by Alex Palmer | March 21, 2017
As the gift card market continues to grow, so too do concerns about gift card fraud, particularly in the case of CNP, or "card not present" online transactions. Preventing this fraud is just what the ecommerce company Riskified provides, which just released a new report on the biggest risks in the gift card market and how retailers and merchants can identify potential red flags. The new report, titled "CNP Fraud in Gift Cards," draws on Riskified's experience with dozens of online gift card merchants, drawing on their own data about security risks presented by gift cards, as well as best practices for managing risk. 

According to Riskified, adding closed-loop gift cards -- which bear the name of a specific brand or retailer -- to a shopping cart negatively impacts the approval rate the company gives (based on the level of risk associated with a purchase). For example, closed-loop camera gift cards decrease the risk approval rate for a shopping cart by 6.8 percent, while sports cards decrease it 8.1 percent, fashion cards by 11.1 percent, and electronics decrease its approval rating by 12.51 percent.

But it notes that open-loop cards, which can essentially serve as cash, are even more vulnerable to fraud, noting that less than 80 percent of online open-loop gift card orders are valid, compared to almost 90 percent of closed-loop card orders. Businesses that sell closed-loop gift cards for "risky goods" such as gaming consoles and electronics, were found to experience a greater amount of fraud attempts, as were closed-loop card for merchants selling a wide range of products (such as Amazon and Walmart).

For incentive planners working with gift cards, many of these fraud concerns can be combatted by working with a credible incentive house or gift card provider, many of which have expanded or deepened their security protections. For retailers and merchants looking to counter these issues, Riskified proposes a handful of best practices that retailers can use to help drive up purchase approval rates. One is to link the email address to the customer's name.

"Orders for digital cards where the email address matches the customer's name are five times less likely to be a fraud attempt than those where the email does not match," noted the report.

Another tip is to "identify and nurture returning customers," noting that returning gift card shoppers are far less likely to be fraudulent. Cross-referencing data such as IP address, billing address, and customer user name can confirm they are returning. Riskified found additional behaviors correlate with legitimate orders: using promo codes and discounts, adding a personalized photo or message to a card, or writing a message of more than 20 characters all proved to be signs of customers who could be trusted.

"The global online gift card market is expected to continue growing, led by significant rise in digital card sales," concluded the report. "This growth presents a major opportunity for retailers, merchants, and gift-card marketplaces, but also raises the stakes on accurate CNP fraud detection."

The full report is available for download here.