alt Hacker NewsAnd yet they continue to sell these cards. Why?
It's simple: they're essentially free money. The worst case for them is that the recipient of the card uses the full amount of the card. In that case, the issuer "only" makes the full profit on those sales. Often they do better: the card is used partially or not at all, then lost or forgotten about.
You can see how lucrative they are by looking at promotions. You can often find deals where you can buy a $100 card for $90, or similar. Why would you sell a dollar for 90 cents? Because you know that on average you're selling quite a bit less than a dollar.
As for the fraud risk... do they even care? When gift cards are used for crime, the issuer doesn't suffer. Maybe they have to deal with upset customers, but that's hardly new. Most of the time, the gift card is bought legitimately, given to criminals, resold, used by the secondary buyer, and the only one who suffers is the unfortunate scam victim who bought it.
It would be so easy to make gift cards more secure. Modern technology can do a lot better than an alphanumeric code under a sticky cover. The fact that they don't bother should tell you everything you need to know about how important fraud is for them.
Replies
> Why would you sell a dollar for 90 cents? Because you know that on average you're selling quite a bit less than a dollar.
There's more to it than covering the risk of fraud. It's more about optionality. The gift card only allows for buying things at one place — so you're restricted in what you can buy, can't deposit it at a bank, can't comparison shop etc.
I don't get the sense that money being left on the card is a serious issue for the sort of person who goes hunting for deals like this. They'll eventually spend more than the card's value and have the last of it apply partially to some purchase.
Also the discount rates I've seen have been more like buying the $100 card for $95 or $97. Except perhaps where the gift card retailer is offering it directly as part of a cross-promotion deal with the target retailer.
Breakage is between 10-20% on average, which is just insane.
However, a significant amount of the spending in gift card promotions is from the marketing budget of these companies. They use gift cards to keep you "engaged". They are used the way companies used to give out coupons basically.
Promotions rarely cost much. Keep in mind that even if breakage was zero, every dollar you spend at a company already has a profit margin baked in. Even if you only pay $9 for that $10 of spend at CompanyPlace, they are likely still making a profit. Promotions also have strong limits, so you can't really profit off of them as a consumer.
Except for one time. Once, IKEA ran a promotion that was "Spend $1000, get $100", and chose to set NO LIMITS. People were banking $10k worth of IKEA giftcards "for my future kitchen renovation" and IKEA found out their gift card fulfillment process was.... antiquated. Did you know old versions of Excel only allow for 65k rows of data?
>As for the fraud risk... do they even care?
We care. The brick and mortar store and Apple themselves don't really care, because they pay our company to take that risk, and our entire business is about preventing credit card fraud to reduce how much that risk costs.
>It would be so easy to make gift cards more secure. Modern technology can do a lot better than an alphanumeric code under a sticky cover.
What? What is your idea for better securing these cards? What "Tech" would help?
Note that I have no clue what apple is doing banning this account. We don't tend to ban victims of fraud or crime or scams, especially not for physical cards bought in a store because who knows what actually happened.
Your math is wrong.
The merchant wants you to use the card, in all cases, always. Because statistically, you are likely to spend 30-40% more than the card face value, when you do.
The unused portion of the card sits on the merchant's balance sheet as a liability, for years, until they decide to recognize it as revenue ("breakage"). They prefer this over NOT selling a GC, of course, and some merchants (e.g. Starbucks, high volume, low ticket) make a ton of money on breakage. But in all cases, merchants greatly prefer their cards to be used.
You're also wrong about how the fraud works. Usually, the card is not purchased but sniffed prior to legitimate sale. The mechanisms for this vary, but a common method is to literally pull armloads of cards off of display shelves, open and repackage the carriers, then surreptitiously return to shelves for legitimate sale. This is purportedly the process for large organized crime rings based in Asia, mostly China.
And you're wrong about how easy it would be to fix. Packaging costs money, retailers have to be on board for activation, this has to be integrated into POS systems, and it all has to be very easy for consumers.
This is a hard problem at scale, and smart and motivated people on the merchant side, the program manager side, the bank side, and the law enforcement side, would love a simple solution.
...
What is not a hard problem, though, is that Apple should separate "AML investigation in process" from the user's ability to access their own data. This would turn a very large problem (for all involved) into an annoying inconvenience (for the customer).