Andrew J. Chapin

@andrewjchapin

Gift Card Technology Lags Behind, Consumers Lose

From mobile payments to the American adoption of chip-card tech, payment technology has had a great decade. Developments have positively impacted each step of the transaction pipeline: faster processing and settlement times, lower transaction costs, and perhaps most importantly, less fraud.

While general payment technology makes great strides, gift card tech is lagging behind.

The problems with gift cards are aplenty:

  • The lack of personally identifiable information makes gift cards a prime theft target, and it makes for the perfect platform to launder money.
  • There’s a serious lack of security — if you lose your gift card, it’s gone.
  • While some states require stores and restaurants to refund small gift card balances, it’s not always worth the hassle. Somehow, trapped balances remain a problem.
  • The secondary market sucks: eBay is chock-full of fraud, you can’t trust Facebook Marketplace or Craigslist, and even some of the gift card resale specialists don’t have the secure transfer of a gift card figured out.
  • Those who engage in credit card fraud frequently target gift cards because of their cash-like traits. It’s estimated that 10% of all online fraud attempts were on downloadable or e-mail gift cards.

It would be one thing if gift cards only faced one of these issues — but the relevance of this complete list in 2018 is staggering.

Solutions are on the way, though they’re not coming from who you might expect — not American Express or Bancorp (issuer of the popular Vanilla Visa Gift Card), but from a set of smaller companies and startups. Ya know, because why would the parties responsible for issuing and selling give a care?

Cardpool is a nine-year old gift card exchange owned by Cashstar. They do this the right way, where gift card sellers sell the card to Cardpool itself rather than to another person on a marketplace. The company role as an intermediate step allows Cardpool to verify amounts and potentially take other steps (like transfer the balance to a new number) to ensure the eventual buyer gets what they paid for.

While that’s a great immediate step to address some of the problem, other companies are entering the picture with their eyes on the entire prize.

Tokky, a new entrant to the space, shifts the experience from the existing (plastic or code) experience onto a new, open-source, blockchain-based platform.

Perhaps most importantly, Tokky leverages blockchain to link each gift card with a user account — this logs ownership, secures against theft or unwanted transfers, and serves as a guard against money laundering. The firm plans to offer a secondary marketplace for cards of all amounts, whether it’s the leftover $0.71 or the full $50.00.

The ambitious project, which also includes point of sale software and an end-user mobile app, is set to release a public beta this fall. You can register for more information on their website.

I have expressed my frustrations about this space before — Benja was the victim of a carding attack in late 2016 — and the unfortunate truth is our experience scared us away from the space entirely.

It doesn’t have to be that way, and if Tokky and its competitors have their way, we’ll all see the benefits by this time next year.

Andrew J. Chapin is Co-Founder & CEO of Benja, head of the benjaCoin token project, author of Art of the Initial Coin Offering, and an advisor to several crypto projects. This November, Andrew is running the New York City marathon for Athletes to End Alzheimer’s.

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