The Gift Card P2P Market Dilemma

Ray Youssef
Jan 28, 2018 · 11 min read

Gift cards are the way the unbanked gets bitcoin and enters the #p2pfinance economy but they also have some serious issues.

  1. Fraud from the Sellers of Gift Cards
  2. Long Dispute Times
  3. Impossible Disputes
  4. Vendors Ripping Codes

These reasons and more make gift cards a grey area yet this business has transformed lives around the world especially in Africa. Other sites such as LBC have taken down gift cards completely as it was not worth their bottom line. On Paxful we have fought to keep gift cards open as a service to the unbanked. We have quadrupled our support and dispute team and are still backed up. Here is an inside sneak peak into why this is and just how hard it is to maintain this.

Gift Card Seller Fraud & Coin Locking

If you put up an offer to sell bitcoins in exchange for gift card codes on Paxful you will get a flood of business the moment you do and roughly 1 out of 5 codes will be good. This is a real stat and the ratio is even worse from certain markets where the averages rate of bad cards goes up to 1 out of 10. This makes things difficult for the guys selling the bitcoins as they will have to go through 5–10 bad trades to get a good card. The rules on Paxful do not allow the gift card seller to cancel the trade so their coins are often locked in escrow.

Coin Locking is a massive problem and the single biggest reason why so many Bitcoin sellers ( We call them vendors ) often raise prices and drop out of the business. They simply cannot handle the fatigue of dealing with the buyers of bitcoin trying to defraud them out of their bitcoin with used codes. Often times the buyers of bitcoin do not know if their codes are good as they get the codes from a broker or third party and many gift cards such as iTunes and Google Play are impossible to check for a balance until redeemed. There are however many users that will try and sell the same gift card codes several times in a row or try and sell gift cards they find on google searches hoping to get a gullible vendor. This is fraud and we ban these users immediately and permanently. Their funds are also locked as this is the only way to keep them off the platform.

Before our Funds Locking policy these users would simply make a new account after a ban and start trying to defraud again. All efforts to stop them with VPN and device detection fail as dedicated scammers will always find ways around these checks. The threat of losing their scammed funds does indeed work as a deterrent and is the only reason why Paxful can continue to offer Gift Cards as a payment method where other services have banned them all.

Super Long Dispute Times

The immense volume of bad trades with used codes in gift cards is what creates a tremendous delay in gift card disputes. There are often thousands of disputes in queue and the buyer of the bitcoins swear up and down that their codes are good when they have already sold them previously, often just in the trade before. Those are the easy disputes to solve. The hard ones are where there is no such evidence and the code itself is for a gift card where a balance check is impossible. Often this means the only way to prove the case is for the bitcoin buyer to call Apple or Google and ask then the code was used. Apple only offers this service intermittently and often it is not possible for user to call them as they are not in the USA and did not buy the code themselves.

Impossible Disputes

There are some disputes where flipping a coin is a mods only option. There are several reasons for this.

  1. Gift card codes like iTunes and Google Play cannot have their balance checked until redeemed and there is no way to automate it.
  2. Buyers of Bitcoin are often selling gift cards which they did not buy themselves (For example, there are no Walmarts in Nigeria) and the person who sold them the gift card often got it from someone else. This is called brokering and it is against Paxful TOS because it makes proving the validity of the gift card very hard, impossible if they are gift cards from example 1 above.
  3. Proving when the gift card was used by calling the issuer of the gift cards is often not possible for the buyers because they are not in the USA, where most of the cards come from and the issuer often declines to give out such information. Also even if they do get the information, many times the holders of the gift cards scam by using the codes themselves after the trade begins. There is no way around this.

Vendors Ripping Codes

Most vendors selling bitcoins for Gift cards come from Asia and many often do hundreds of trades a day. They have very high feedback and while most of them are honest there are indeed a few that selectively rip users. Most of these users are Africans, particularly Nigerian users that get ripped. We can’t do much to help them for the reasons above and these vendors know this. The reasons for this are

  1. For every 6 gift card codes only 1 is often good so for this reason the mods often side with the seller of the bitcoin.
  2. The gift card holders often did not buy the codes themselves and when asked if they did buy them, they lie or do not reveal their source which puts them in a bad light with moderators. Lying is not a good way to win over a judge but often the gift card holder has no way to get these codes except brokering, which is against our TOS.
  3. Many of these gift cards codes are not reversible, such as iTunes and Google Play so the vendors can rip them without fear of losing the codes. These codes also cannot be checked for a balance and they know the holder of the codes cannot easily check when they were used.
  4. The vendors realize that the gift card holders are selling the codes for anywhere from 30–60% off and refuse to reveal their sources which again puts them in a bad light with mods.
  5. Many newbie gift card holders will give out the code without reading the vendor instructions and will cancel a trades when asked too even when they know the code is good.

Despite us warning users not to sell gift cards they did not buy and not to use irreversible gift card codes many refuse to listen and still continue on selling codes they did not buy. We have tried various methods to try and protect the gift card holders

  1. Force Vendors to record videos when they get each code and try and redeem it. Would not work because no vendors at all would bother putting up their offers if they had to do this for each code as 5 out of 6 times the codes are bad, thanks to gift card holders willfully trying to scam them.
  2. Banning Nigeria and other markets from selling gift cards that are not available in their country. We tried this and it completely failed as the fraud rate tripled as the honest users didn’t bother trading while the scammers used VPN’s extensively.
  3. Educating users about best practices is our only hope. The problem is most users refuse to read articles or instructions. Videos are our new method and we have high hopes they will work when applied extensively.
    https://paxful.com/hc/en-us/articles/360009281094-Buy-bitcoins-with-gift-cards
  4. Raising iTunes to 5% as opposed to 1% has helped move traffic away from this risky payment method. Raising gift cards to 2% to fund the tripling of our dispute moderation team we hope will also speed up and improve the dispute process.

A Hard Road indeed

Paxful does over 40 million USD a week in trade volume and over 60,000 trades a day. Our escrow . Our data is public and despite us have a lower volume than the other crypto p2p platform, we do many more transactions, this is because we serve the underbanked peoples of the world in emerging markets. Nigeria is our 2nd biggest market, Ghana is #3 and India is 4th with the undeveloped world taking the lions share of our growing community. This gives us the privilege of serving those who need financial services most but it also presents us with some huge challenges.

If you have ever had a dispute on Paxful you usually had to wait 20–60 minutes before it is solved, but now it can be days to a week. Right now we have literally thousands of disputes open and this number has been growing daily. Our dispute moderators are drowning in iTunes gift card disputes which make up 90% of our total dispute volume and over 99.99% of the time our moderators spend on disputes.

But.. why go thru all the trouble??

We are the only p2p crypto service that deals with iTunes gift cards, why? All the others stopped supporting them because of the absolutely massive headache and near impossibility of proving proper account balances on iTunes gift cards. We have chosen to keep iTunes gift card support because it is still how the unbanked of Africa get their bitcoins. We refuse to abandon these unbanked users as the whole idea of bitcoin and Paxful is to help them. This comes at a huge pain price but we decided it was worth it. Our mission is to provide financial services to the entire world as a human right and sometimes that means going through tough terrain. We are working to transfer as much of the African traffic from iTunes Gift cards to bank transfer as the prices are often much better ( iTunes Gift Cards carry a 30–60% profit margin while bank transfer is often 5–10% ) and there are far fewer issues but iTunes Gift cards is still how most Africans begin their crypto journey and many don’t have a choice. For example, only 20% of Nigerians have a bank account.

What’s so special about iTunes gift cards?

iTunes gift cards are irreversible, much like bitcoins, however with bitcoin you can easily check the balance of any account on a public ledger, with iTunes you cannot as it is a private system. This means absolute chaos when trying to award disputes. 99% of all iTunes giftcard trades on Paxful go smoothly out of tens of thousands every week yet that 1% is really taxing our human resources.

Our dispute moderators must spend days on each one collecting evidence from both sides. Often it comes down to a coin flip as 99% of the people who get these cards are Nigerians and they get them online through brokering, which is against the Paxful Terms of Service. This is because they have no idea if the codes they bought are good or not thus causing massive confusion and wasting peoples times, hence why we forbid brokering. You cannot check the validity of an iTunes gift card until you redeem it which makes it worthless instantly. Nigerians buy these cards through online brokering and then sell them on Paxful for bitcoin, usually to Chinese vendors (what they do with 11 million in iTunes gift cards a week is another story). Imagine going into a trade dispute with a Nigerian fellow and Chinese vendor both cursing each other in their respective languages and colorful english. Is the Chinese vendor with 10,000 feedback ripping the Nigerian trader? The Nigerian iTunes gift card trader has no idea if the code he has is valid and while sometimes it is many will swear on their life that it is valid. The Chinese vendors sometimes make mistakes with card balances getting confused from many simultaneous trades but there have been confirmed cases of ripping. Our mods ask the Nigerian iTunes trader to call apple and get recorded proof of who used the card and when. Most Nigerians don’t bother to call the oversea’s number and record the conversation, it is difficult for them, yet the burden of proof is on them to prove the value of the card. The point stands that there is no simple or quick way to get to the bottom of this.

Now what?

We won’t ban iTunes gift cards and cut off the unbanked and we don’t have a solution for fixing the dispute issue so what can we do?

First please accept my humble apologies as the CEO of Paxful. We never saw this coming at this scale… no excuses. We should have been prepared for anything.

Second please know that we are open to ANY and ALL advice about how we can fix this extreme situation.

Third we have opened up a new office in the Philippines and have begun training dispute moderators to quadruple the size of the team. We did this in September and we have already triple the size of our dispute team yet we have much more work to do. It takes time to train people to handle disputes and to recruit trusted people. We vet applicants very carefully with various background checks and monitor them. Only this selected team is allowed to view sensitive financial data in trades and this is why only help@paxful.com can help with disputes. No one else on our social media like Twitter or Facebook has any access to trade data so please be patient.

Fourth, we have begun experimenting with new security features. CodeCheck is a new tracking system that will compare all gift cards submitted and check their validity within Paxful and on their own ledgers, if possible. It is much easier to do this with Amazon but we hope to magically have a way to do this with iTunes as well. We have a HUGE bounty for anyone that can find us a scaleable automated way to check iTunes balances. Several other image detection and hardware finger printing security services are due to go online soon as well.

Fifth, a deal with Apple that would allow us to check these balances thru this system would SOLVE THIS ENTIRE PROBLEM OVERNIGHT. After all Apple definitely has a way to check balances built into their customer service apps. Surely “bitcoin friendly Apple” cough * would be happy to cut down fraud with their gift cards and help the unbanked in Africa, right? We tried speaking to Blackhawk and Incomm, the two companies Apple has handling their iTunes gift card network. They said there is no available API or service that does this. They do not approve or want their gift cards being used for thus after market activity and frown upon the entire process. We spent two months essentially reaching out to everyone we could only to get a flat out “NO!” every single time. Sorry, guys I personally went all out on this myself and no one seems to have a solution. Please have Tim Cook msg me on twitter if you can ;)

Please accept our apologies

We really are trying everything we can to fix this problem and are very sorry for those long dispute times. We choose to stick with our mission and help the unbanked get bitcoin and we are all paying the price. It is a price we will gladly pay yet we wish the end user didn’t have to as well. Please be patient with us as we work towards a solution and forgive our lack of communicate. We are not professional marketers, just coders and we are just now learning the ropes of proper communication with our customers. Thank you for being so awesome guys. We are really trying and won’t ever give up tell everything is awesome!

Thank you

Ray Youssef

Paxful CEO

The Paxful Blog

Home of P2P finance

Ray Youssef

Written by

Entrepreneur & Natural Philosopher

The Paxful Blog

Home of P2P finance

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