In a world where money is often represented as numbers moving from one place to another, the difference between types of payment cards may seem a bit nebulous.
The end of the year holiday shopping season will soon be upon us. And with this turning of the seasons, our thoughts turn to payment cards. Or is that just a security wonk thing? As retailers both on and offline become more busy, the incidence of payment card fraud increases. This negatively affects both retailers and consumers, as we all have to pay for this theft. Likewise, we all need to help by doing our part to discourage fraud. In this post we’ll discuss security considerations around gift cards.
Hierarchy of cards
In a world where money is often represented as numbers moving from one place to another, the difference between types of payment cards may seem a bit nebulous. But there are subtle differences between how money is moved, and in protections offered for the different types of accounts.
There is a legal limit on the amount of liability you have on credit and debit cards, with some popular types additionally offering “zero liability” for customers who promptly report fraudulent purchases.
Credit cards offer the most protection to consumers, in part because your card only offers access to funds borrowed from a bank. Debit cards, on the other hand, offer access to funds stored in your savings or checking account. This means that a credit card fraud temporarily decreases your limit to a line of credit, while debit card fraud may temporarily prevent access to your own money for use or withdrawal, until the theft report is processed.
Gift cards and stored-value (also called “prepaid”) cards also behave differently from one another. Gift cards function as a digital representation of cash for redemption at certain stores. And, like cash, if a card is lost or stolen you’re probably out of luck. Stored-value cards act more like a bank account in that you may have “zero liability” for fraudulent purchases, but you may also be subject to monthly or per-activity fees.
“Credit cards offer the most protection to consumers, in part because your card only offers access to funds borrowed from a bank”
Gift cards are unique among payment cards because they do function so much like a digital equivalent to cash. The key word in that description being “digital”; meaning that cards can be bought, sold and managed online. And, as is too often the case, if something is accessible online it usually means that people with nefarious intentions can also access it. There is a wide variety of ways that criminals can and do misuse gift cards. These techniques basically boil down to ways of defrauding retailers by selling stolen goods, and ways of defrauding gift card recipients of the value of their cards.
There are three things consumers can do to decrease (but not eliminate) the odds of problems with gift cards:
- Buy only from retailers that store them in locked cases
- If you must buy them online, get them directly from the retailer
- Buy only cards that require PINs for purchases
This holiday season, perhaps we should revive the old-fashioned tradition of exchanging cash in a festive greeting card. But even if you do seek the convenience of payment cards that can be bought and sent online, there are ways to improve the odds that your recipient will get to enjoy the full measure of your generosity.