StorefrontBacktalk.com: A Gift Card Security Seal?

Discussion
Nov 27, 2007

By Evan Schuman

Through a special arrangement, what follows is an excerpt of a current article from StorefrontBacktalk.com, a retail technology and E-Commerce blog, presented here for discussion.

A major gift card exchange site has launched an unusual gift card program that guarantees all exchange transactions. 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 gift card. The guarantee is also capped at $1,000.

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 Plastic Jungle CEO Tina Henson said her company had to make some compromises.

“We have to somewhat limit the restrictions,” she said. “How many sellers will want to sell on our site if they have to wait 20 days to get paid?”

Ms. Henson said Plastic Jungle is negotiating with eBay’s PayPal group to try and allow Plastic Jungle to accept PayPal payments, 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,” Ms. Henson said.

To that end, Ms. 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.

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 worth of gift cards 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 gift cards.

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 gift cards. Thus, that revenue might never be realized. Gift cards today are also highly attractive to shoplifters and cyber thieves, 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 gift cards as they can in multiple locations.

Discussion Questions: What do you think of Plastic Jungle’s guarantee program? Do you think such programs will improve the liquidity and overall appeal of gift cards? What do you think of such programs as a deterrent against online fraud?

Read the full story: A Gift Card Security Seal? – StorefrontBacktalk

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6 Comments on "StorefrontBacktalk.com: A Gift Card Security Seal?"


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Mark Lilien
Guest
14 years 5 months ago

If Plastic Jungle gets a huge amount of repeated, sustained free publicity for a couple of years, its chances of consistent profitability will be enhanced. It’s not easy to get the sustained attention of millions of gift card shoppers at a reasonable price. If the Pastic Jungle security seal guaranty program takes off, what’s to prevent 19 other sites, especially eBay, from copying it?

David Biernbaum
Guest
14 years 5 months ago

Gift card exchange is a very real component of a free enterprise system.

Paula Rosenblum
Guest
14 years 5 months ago

Especially since 60 Minutes’ recent story on the TJX breach (not a perfectly accurate story, to be sure…but enough to catch consumers’ eyes), guarantees like this will become a plus.

I do, however, continue my complete befuddlement over retailers’ love of gift cards. I understand that consumers overspend the amount on the gift card and in the middle of the year, they can be accretive to sales. I do not think that the $8 billion unredeemed amount is such a boon for retailers. I believe escheatment laws and the lack of revenue recognition trumps the extra cash (spread across how many retailers?).

Especially in the holiday season, gift cards seem very risky for retailers. I don’t think any retailer would be happy with an income statement footnote that said “comp store sales were down this holiday season because gift card purchases were up.”

I know I’ve been saying this at every opportunity lately, but it remains true. I still don’t get it.

Bill Kennedy
Guest
Bill Kennedy
14 years 5 months ago

The program, to me, assumes the thief is the gift card sender. What if the purchaser is the crook? One of the main gripes with eBay is that the focus is always on protecting the buyer. It has got to be a 2 way street.

Evan Schuman
Guest
Evan Schuman
14 years 5 months ago

In response to the comment from BKenn01, it’s true that Plastic Jungle’s program does focus their security on the seller because that’s where they see the vast majority of the frauds coming from.

It’s hard to envision a lot of money being made by scamming on the buyer side. They agree to pay $100 for a $150 gift card. How would they scam the system? Plastic Jungle would retain all card numbers, so a false claim that the card had no value left would seem fruitless.

Bill Kennedy
Guest
Bill Kennedy
14 years 5 months ago

My comment referred to buyers who claim they did not receive the card when in fact they did.

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