A Gift Card Security Seal?

A major gift card exchange site has launched an unusual giftcard program that guarantees all exchange transactions.

The move by Plastic Jungle is interesting mostly because of the especially strategic position that gift cards hold today. The U.S. Office Of the Comptroller of the Currency this month reported that more than $26 billion of giftcards will likely be purchased by Americans this year, with many consumers purchasing two or more such cards.

Of greater interest to the gift card exchange space, though, is the OCC's estimate that consumers lost some $8 billion last year through unused giftcards.

Those lost dollars do not typically turn into retail revenue, as most of the larger retailers cannot report the income until they are used. Some states also enforce abandoned property rules that require retailers to turn in unused giftcards. Thus, that revenue might never be realized.

But retailers love the giftcards for their CRM potential, especially when they are reusable giftcards, more technically referred to as stored value cards. The card introduce potential new customers to the chain, which can track the activity and—theoretically—eventually connect to an individual consumer when the card is redeemed.

Giftcards today are also highly attractive to shoplifters and cyberthieves, who use them as money laundries. The most popular tactic today for thieves stealing credit card data is to quickly create a bogus credit card with the stolen data and to then use that credit card to purchase as many giftcards as they can in multiple locations.

The thief's rationale is that credit card theft can be quickly determined and banks are getting very good at quickly shutting down a reported card. That means that they must use the card for a very short period of time. Most gift card databases are not that sophisticated yet so it can take a lot longer to trace and deactivate a gift card than a credit card. That's why many retailers forbid a customer from purchasing more than a few hundred dollars' worth of giftcards at any one location and time.

Because of that $8 billion in unused gift cards, many Web sites have cropped up to allow consumers to sell those gift cards to other consumers, allowing for a customer to sell an unwanted gift card for a more desired one. The site generally takes a percentage of each sale and often charges a transaction fee as well.

But because of those gift card laundry capabilities, the gift card exchanges are very popular among scam artists who sell invalid cards as well as cyber thieves who sell legitimate gift cards that were purchased with bogus credit cards.

Last year, the National Retail Federation went so far as to issue a news release discouraging consumers from using gift card exchange sites. "Only purchase gift cards from reputable sources and not online auction sites, where they are likely to be counterfeit or were fraudulently obtained," the NRF statement said. The phrase "online auction site" is widely interpreted as an EBay reference, which is where most gift card exchanges happen.

The Plastic Jungle guarantee plan is done by insisting that card sellers give a verifiable physical address along with a credit card number associated with that physical address. Payment is then made solely by mailing a check to that address, to the name on that credit card. The check isn't issued until the buyer receives that giftcard. The guarantee is also capped at $1,000.

"We wanted to separate ourselves from the rest of the secondary gift card market," said Plastic Jungle CEO Tina Henson. "We want to make (sellers) accountable for the transactions they incur. Today, they all hide behind PayPal and E-mail addresses."

Plastic Jungle will encourage buyers to verify (via Web or phone) the gift card balance as soon as possible, but it will give them 15 days to check. In an ideal security setting, no check would be issued until the buyer verified that the card had the promised value, but Henson said her company had to make some compromises. "We have to somewhat limit the restrictions," she said, asking: "How many sellers will want to sell on our site if they have to wait 20 days to get paid?"

Henson said Plastic Jungle is negotiating with EBay's PayPal group to try and allow Plastic Jungle to accept PayPal payment, but only if EBay is willing to associate physical addresses with their customers.

Plastic Jungle's pricing is a 10 percent cut of the transaction, but they do not charge any listing fee. "We really care if you sell it because we don't make any money if you don't," Henson said.

To that end, Henson said her site will soon have a price adviser feature, which will display the last 3-5 transactions for an identical gift card and suggest a price that is 85 percent of the value of the card.

Other new features of the site include GiftGuru, which asks for age, gender and relationship of the gift recipient and then suggests appropriate cards to buy and a wishlist where customers are sent an E-mail (and soon a text message) when a desired card becomes available. A program for customers to check their gift card balances online is also pending.

A program Plastic Jungle announced last week—called PlasticVault—allows customers to store a wide range of giftcard numbers, including many that the customer has no intention of trying to sell. The idea is to help those cards get replaced if they are lost, stolen or damaged as well as tracking account balances and transactions on those cards.

Not all retailers will honor such a program and will insist on a receipt for those gift cards. BestBuy is a large chain that today does not require a receipt, but among those who insist on a receipt are RadioShack, the Gap and Chico's (which also wants to know the identity of the original purchaser), Henson said.