The Role of Phony Returns in Gift Card Fraud
krebsonsecurity.com
krebsonsecurity.com
If merchant would want - they'd close this loophole within 5 minutes. Yet they choose not to.
"Lisa admits she remains conflicted over whether she would buy another steeply discounted card to help feed her dogs"
Don't worry Lisa, merchants themselves are perfectly OK with you buying steeply discounted gift card.
After all their margin is way higher that measly 30% off you're getting your gift cards for. They'll quietly raise prices to compensate if needed.
Feed your doggies well while you can!
Naturally Petco does not want to repel gift card customers just because they cannot catch shoplifters. Once shoplifter succeeded - he can sell stuff on eBay, on Craigslist, via gift cards or just directly on the street.
Gift card is just a convenience vehicle that Petco agreed upon to keep opened regardless of where merchandise came from.
In fact many stores do ask my ID and address/phones numbers before accepting returns. It's hard to make millions with this type of theft (not fraud) model. After 3-rd return without receipt - pretty much every store will kick person's butt out of the store or call security/police.
It's a great fraud target, as you can buy a gift card with a stolen credit card, then possibly even sell it for real money while getting to test your stolen cards.
> The only items he was trying to buy were several $200 gift cards. When the first card he swiped was declined, the man fished two more cards out of his wallet.
Obvious solution is to ask for photo ID when selling gift cards. It needs to match the credit cards and the customer's face.
As for giving out gift cards for stolen merchandise, it should be possible to add a unique bar code on every high-value item and scan it on purchase and return. Then stores will know if they received money for the item when someone tries to return it. This also fixes the problem of people returning items bought at another store.
The only real concern, for the shopper, is whether the prices of the goods they want to purchase will increase because of the frauds. Not likely, given the competition for items such as pet food.
(0) http://www.seattletimes.com/business/starbucks-prepaid-cards...
http://www.prnewswire.com/news-releases/2014-gift-card-sales...
It's not really that simple (under US accounting practices, anyway). When a gift card is purchased, the value of the card increments a liability on the company's books; Gift card revenues are recognized on redemption of the card for goods, not when the card is purchased. From an accounting perspective, this is somewhat messy, particularly when consumers leave a balance on a card with no intention of spending it.
There are at least two separate issues here:
1) Gift cards issued in California cannot usually have an expiry date or dormancy fees, so can be redeemed at any time after issuance, even 1000 years in the future.
2) IFRS 15 requires issuers to estimate breakage (usually based on historical redemption patterns). Once the issuer deems the chance of redemption to be remote, they can immediately recognise the amount as revenue, i.e. DR liabilities and CR revenue.
These issues do not conflict.
Estimate your breakage balance every quarter. If it's gone up since last time, recognise some additional revenue. If it's gone down, then reverse some revenue. These affect your financial reporting, but doesn't affect your dealings with customers.
You'd calculate breakage in a similar way to that in which lenders calculate provisions for bad debts. You would do it at a portfolio level (perhaps breaking unredeemed gift cards into buckets based on value, date of issuance, and last activity date).
Since when selling to customers something they want is something morally wrong? Because it is an interest free loan? If you think about it the world is full of interest free loans.
Tickets for concert? Check
Service retainer (e.g: lawyers, accountants)? Check
Insurances? Check
Online retailers? Check (until they ship the good)
Again, what is morally egregious that makes fraud against them sort of a lesser crime?
I find nothing objectionable about the sale of gift cards and, as I stated from the start, I do not condone fraud. My response was to this woman's statement:
>“I feel really bad now because my purchase of these cards may have contributed to unlawful activities,” Lisa said. “Even though I saved $40+, Petco actually lost money as a result.”
I don't feel bad for large corporations, especially in light of how much money they make off of the gift cards they sell and the fact that they are not obligated by any law to hand out the gift cards for unverified returns in the first place. It's a situation they created for themselves and they can fix themselves.
I also can't share her concern about 'contributing to unlawful activities'. I consider myself a pretty conscientious individual, but there just isn't any way to know whether the money I spent on gift cards went to a criminal or just someone who got an unwanted gift for their birthday. That level of worrying is beyond sanity.