The Verified Wal-Mart Giftcard That Wasn't

Earlier this month, giftcard exchange site Plastic Jungle was approached by a giftcard seller, offering two $200 Wal-Mart giftcards. Site CEO Tina Henson declined to buy the cards directly and instead suggested the seller use the site's auction area. The seller did and posted the cards for $125 and $135.

But when the site's authentication team checked on the cards, the Wal-Mart computer reported that the cards were valid and their value was intact, but they had just been purchased the day before. Thinking it was odd that someone would pay $400 for cards and then the next day be willing to sell them for $260, the CEO was contacted, but she shrugged and approved the sale anyway. The cards quickly sold.

On Monday, the site member who purchased the cards called to report a problem. Two days after the buyer purchased the giftcards, Wal-Mart nullified them. That left Henson with a big mess to clean up and some mysteries to unravel.

The fraud has all the markings of a new scam making the rounds where a thief steals a credit card and quickly purchases giftcards and then just as quickly sells them. Even with law enforcement in cyber pursuit, the thief knows that he'll have a few days before the giftcards are made invalid, which is a much longer life expectancy than the stolen credit card.

PlasticJungle's Henson, who had literally boasted to a reporter earlier Monday afternoon that her site had never been hit by a fraudster, issued a new rule for the site: no card will be sold unless it's at least 10 days old, making the site a much less attractive place to fence giftcards.

As giftcards soar in popularity, so too are the number of criminals looking to take advantage of them. The Web's giftcard auction sites?including PlasticJungle.com, EBay.com, CardAvenue.com and SwapaGift.com?are going to have to change tactics repeatedly as fraudsters adapt to the latest defenses. The National Retail Federation recently issued guidelines on how consumers should protect themselves from giftcard fraud and it specifically cautioned consumers against using Web giftcard auction sites.

The problem with such auction sites is that it's often a way for consumers to buy and sell from other consumers, with little oversight. Fraudsters who are afraid of getting caught by a bank or large E-Commerce site might think their chances are better selling to a lone consumer.

PlasticJungle's Henson defends the integrity of her site and say that their site?which is currently free to use?doesn't accept credit cards, debit cards, checks or any form of payment other than eBay's PayPal. Her rationale? PayPal verifies the members more carefully than other systems?theoretically verifying that a legitimate E-mail address and snailmail address exists?and that eBay has a $1,000 insurance policy on transactions, she said.

Using the Wal-Mart $200 giftcards incident as an example, Henson said that the eBay rules wouldn't permit PlasticJungle to represent their victimized customer?as they were officially not a party to the transaction. She said she contacted the victim and asked him to file a dispute with PayPal directly. "But I assured him that we would cover any of his losses that PayPal doesn't pay," Henson said.

Watching from the sidelines, retailers have to be ultra-careful. Any scams involving their cards is bad news for the retailer, not so much for the lost money (although that is a factor) as for the lost confidence in the integrity of their card even if the retailer did absolutely nothing wrong.

On the flipside, these discount auction sites?which often sell retailer giftcards for less than facevalue and, as such, as very attractive to consumers?represent a potentially substantial amount of revenue to the retailers and an even larger number of potential new customers to enter their doors (virtual or brick-and-mortar). PlasticJungle, for example, has said that it wants to work with retailers to have a direct presence in physical stores, reselling their cards at a discount.

Len Gilbert is VP of giftcards (as well as a VP of marketing) for Barnes & Noble and he is very careful when addressing this issue. "We don't give advice about buying from auction sites," he said, quickly adding "You're best off buying directly from us to make sure that the giftcard you get is the giftcard you intended to get."

One popular safety tool of auction sites is community policing, where a member that rips off another member is quickly given a very low reliability rating and is often then shunned. A Carnegie Mellon University project recently detailed efforts by fraudsters to work in groups to get around the community policing and how they have crafted a data analysis tool to identify such efforts.

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