Gift cards are an attractive source of revenue. Not only do you get the money from a gift card sale upfront, an estimated 6% of gift cards never get redeemed at all. That essentially means tacking free revenue onto your bottom line.
Unfortunately, gift cards aren’t a perfect product. One glaring problem is that they’re the frequent target of scams. The Federal Trade Commission estimates that gift card fraud cost merchants and consumers $217 million in 2023. To put that into context, fraud analysts estimate that gift card fraud accounts for anywhere between 1% and 5% of all gift card sales.
In this article, we break down everything you need to know about gift card fraud. We discuss common fraud tactics, the impact of gift card scams, and highlight real-world examples of fraud. We also present tips for identifying and preventing attacks so that you can protect your revenue and inventory.
Gift card fraud occurs when a scammer uses underhanded tactics to get ahold of a valid gift card with a balance. They can then spend down the stolen cards’ prepaid balance by making unauthorized purchases.
Gift cards make attractive targets for fraudsters because they are equivalent to cash and less secure than regular debit or credit cards. Gift cards are also anonymous and typically feature irreversible transactions. These characteristics, in combination with one another, make it easy for fraudsters to steal gift cards with impunity.
Read MoreMany of the most common gift card fraud scams involve some form of impersonation or deception. In the past, scammers often impersonated government officials or tech support staff, hoping to trick mostly elderly victims into buying gift cards and then transferring them the balance.
Scams have evolved, though. Fraudsters now carry out much more sophisticated dating scams, CEO impersonation scams, sweepstakes scams, and utility bill scams. Sometimes, gift card scammers may even pose as peer-to-peer sellers and use overpayment fraud tactics to carry out attacks.
Read MoreGift card scams can obviously cause merchants to lose out on money and inventory. But, that’s not the full extent of their woes.
Merchants who encounter frequent gift card fraud may also face customer dissatisfaction, higher payment processing fees, elevated fraud management costs, and strained acquirer relationships.
In some cases, sellers may also face chargeback fees, which can range from $20 to $100 per filed dispute.
Read MoreIt’s easy to think that gift card fraud is rare or theoretical. But it’s neither of those things. In fact, gift card fraudsters can target any cardholder or business at any time… including you.
In the past few years alone, several high-profile scammers, either acting alone or with co-conspirators, have been able to deal millions of dollars of damage to victims who range from elderly individuals and small businesses to major retailers like Lowe’s and Home Depot.
Read MoreGiven the overwhelming number of tactics and techniques, there’s no single tried-and-true method for rooting out all forms of gift card fraud.
No matter the tactic, though, fraudsters often display several universal warning signs and red flags that you can be on the lookout for. From geographical inconsistencies and unusual purchasing volumes to mass purchases and abnormal cross-platform activity, being on the lookout for signs that an attack is imminent can help you react before it’s too late.
Read MoreKnowledge of what gift card fraud is and how it works is part of the battle. Understanding how to spot signs of illicit activity is another part of it. However, what ultimately matters are actionable strategies that help you beat back against bad actors who want to harm you and your customers.
Here, the best preventative strategies against gift card fraud can be found at the policy level. From limiting bulk purchases and daily spending amounts to tracking gift card data and monitoring card activation events, you can safeguard your cards’ stored values and stop attackers in their tracks.
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In general terms, anyone requesting to be paid for a good or service with a gift card or prepaid credit card is probably a scammer.
Here’s an example of how a gift card scam is pulled off: You get a phone call from someone who says they’re from a government agency, like the Social Security Administration. They say your bank account will be frozen for an investigation and tell you to buy gift cards to avoid getting arrested. They target gift cards because they’re equivalent to cash, and are easily transferable but hard to track.
There are multiple ways to commit fraud through gift cards. Some of them are quite sophisticated; for example, thieves may employ an automated algorithm to roll through a list of potential account numbers and request the balance. If the result of any query returns a positive balance, the fraudster knows that the account number is legitimate, and the account contains funds.
A few of the more common schemes include using stolen payment data, account takeover, targeting loyalty points and rewards, and using phony balance checks.
If you contact the retailer who issued the card, there is a possibility that you might receive a refunded balance or a store credit for the missing amount. Don’t count on it, though. Gift card issuers are not necessarily on the hook for scams perpetrated outside of their regular business uses.
Gift cards equate to cash and don’t feature the same protections as credit and debit cards. Any funds that are loaded onto a card and then removed are essentially gone. It will be very difficult to trace the lost funds or retrieve them.
First, you should call the police and file a police report about the situation. Give them copies of all documentation you have in relation to the crime. With the police report in hand, contact the business or retailer that the gift card came from to inform them of the fraudulent card, and see if they are able to provide any assistance.
Next, contact the FTC to file a consumer fraud report. You may save someone else from being victimized by the same type of scam.
Gift card fraud can occur in one of several ways. For example, fraudsters can use credential stuffing techniques to extract working gift card numbers and PIN combinations. Other times, fraudsters may carry out account takeovers, purchase stolen information on the dark web, or conduct phony balance checks to steal gift card details.
Stolen gift cards — and the fraudsters who get their hands on them — are difficult to hunt down because there’s little personal information (like a name or billing address) tied to a gift card. On occasion, scammers may leave a digital footprint behind when carrying out gift card fraud. This digital trail can be examined and may sometimes lead to clues that can be used to track the fraud.
Gift card scammers are difficult to catch since prepaid cards are often difficult to trace. In fact, the best way to catch a scammer is to do so before an attack has been carried out. Beware of common warning signs and scam tactics, implement bulk purchases and daily spending limits, and put in place a multi-layered fraud detection and prevention program that can catch gift card fraudsters before they harm your business.
