The EMV liability shift has laid an unwanted “present” at the gift card industry’s feet.
Now on the hook for fraudulent card-present transactions under the liability shift umbrella, merchants that haven’t upgraded to EMV-compliant point-of-sale technology are putting restrictions on the sale of gift cards in-store to quash increasingly common moves by fraudsters to buy these products with counterfeit magnetic stripe cards and use them in their schemes. Some retailers and restaurant operators, according to The Wall Street Journal, will now accept only cash for gift card purchases, and some have eliminated cards in larger denominations from their gift card assortments. Others, the newspaper reported this week, have begun to impose limits on buying multiple cards—and then, there are those that have stopped selling gift cards altogether.
In general, according to PYMNTS.com, grocery stores, small businesses, and gas stations have adopted EMV-compliant point-of-sale technology at a slower pace than other merchants (although gas stations do have additional time—until October of 2017–to do so). This has bolstered their vulnerability to gift card fraud. The National Grocers Association (NGA) has seen a marked increase in such fraud, Greg Ferrara, its senior vice president of government relations, told PYMNTS.com. Mallory Duncan, general counsel at the National Retail Federation (NRF), concurred, deeming gift cards “a challenge.”
The Wall Street Journal offered several concrete examples of changes in gift card purchasing policies implemented by merchants in light of the EMV liability shift. Supermarket chain Kroger, which reportedly is in the process of rolling out an EMV-compliant point-of-sale system, has placed a restriction on the number of gift cards any individual customer may buy with a credit card in a 24-hour interval. The Wall Street Journal article quoted Chris Hjelm, Kroger’s chief information officer, as having noted that the chain has “done some different things for non-chip transactions” to ensure that it is “mitigating the risk” they pose.
Meanwhile, the Safeway grocery chain has reportedly begun pulling open-loop gift cards from its gift card menu. Safeway officials declined to discuss gift card restrictions with the Wall Street Journal, but the latter said Safeway customers cited instances of observing associates removing the open-loop cards from register racks, and of being told by employees that gift cards can only be purchased with cash.
On the provider side, spokespersons for Blackhawk Network Holdings Inc. pinned part of the blame for a decline in its revenue on merchants’ changing gift card policies. During a recent call with analysts to discuss quarterly earnings, Talbott Roche, the company’s chief executive officer and director, cited moves to restrict the purchase of higher-denomination open-loop gift cards as being of particular concern.
We can’t really blame merchants for their skittishness surrounding gift cards when we look at the potential losses from the product that have shifted to their shoulders: fraudulent gift card purchases contributed significantly to the $3.89 billion in counterfeit payment card losses incurred by issuers in 2014, when the latter were still responsible for them. But what can be done to change the situation? Moves by issuers to distribute chip-based gift cards—not that there have been any—wouldn’t help matters at all considering the extra cost to do so ($1 to $1.50 per card, by most estimates) and the low number of transactions per card. No issuer would really make money on gift cards in such a scenario, and we don’t foresee that being any different down the road.
The only way issuers will continue see financial gains from offering gift cards is if merchants no longer fear selling them because of the risk of fraud that’s involved. And the only way smaller merchants will lose their fear is to jump on the EMV bandwagon to protect themselves from the use of counterfeit cards to pay for anything—gift cards and otherwise—in their establishments. Given all this and consumers’ love of buying gift cards—they’re expected to load $651 billion onto prepaid cards this year, a 57 percent increase from six years ago, according to Mercator Advisory Group—migration can only be a good thing.