Tips on How to Identify the Signs of Gift Card Fraud & What to Do if You Identify an Ongoing Attack
Gift card scammers rely on speed and stealth to go unnoticed. Their methods are designed to blend in with legitimate activity so that their fraudulent transactions look like any other purchase.
But, even the most clever schemes leave a trail. By knowing what to look for — from unusual purchase patterns and suspicious redemption behavior to red flags in order details — you can learn to spot a scam in progress.
This article gives you the intel you need to identify the subtle warning signs of gift card fraud before it escalates into a full-blown attack.
Since gift card fraud can come in all shapes and sizes, there isn’t a single set of red flags that can reliably allow you to detect all fraudulent attacks. Still, some gift card fraud tactics — and their associated warning signs — are more common than others.
Here are some potential indicators of fraud to be cautious about:
Unusual Purchase Volumes or Frequencies
Be wary of buying behavior that deviates from your typical customer. A fraudster might buy an uncommonly large quantity of gift cards at once. Or, they could make many small purchases in a short timeframe to try and stay under a per-transaction threshold programmed into your fraud monitoring systems.
Geographic Inconsistencies
A mismatch in location data should raise an immediate red flag. For example, if a customer’s IP address is in one country, but their billing address is in another, you could be encountering a fraudster.
Be similarly cautious if a gift card is purchased in one location and then immediately redeemed in a completely different city or state. That could be a sign the buyer doesn’t have ties to either location at all.
Velocity & Timing Anomalies
Scammers try to act quickly to avoid being detected. Be on the lookout for multiple, rapid-fire transactions from the same user, IP address, or payment method in a short window. Purchases made at unusual hours, when legitimate customer activity is typically low, can also be an indicator of fraud.
Payment Method Irregularities
As we addressed in an earlier chapter, the anonymity of gift cards is one of their most appealing qualities for scammers. They often try to launder money by using stolen credit card information to purchase gift cards.
An order where the name on the credit card does not match the name on the user’s account, for instance, should be a significant red flag. A series of failed payment attempts followed by a successful one is another common warning sign.
New Account Mass Purchases
A bad actor may create a brand-new account and immediately use it to purchase a large number of gift cards. This is a warning sign because legitimate new customers rarely make such large initial purchases; most genuine buyers ramp up their activity over time.
An account that makes sizable purchases right out of the gate should be treated as highly suspicious.
Rapid Redemption Patterns
Monitor how quickly a gift card is used after it is purchased. If a card’s full balance is drained in a matter of minutes or hours, it’s a strong indicator of fraud. This often means the card was bought with stolen funds and that the scammer is cashing out as fast as possible before they are discovered.
Coordinated Cross-Platform Activity
Sophisticated fraudsters may spread their activity across different platforms to bypass security rules.
For example, they may use your website to test stolen card details and then switch to your mobile app to make the final fraudulent gift card purchase. They do this in the hopes that your fraud detection systems are not integrated across all your channels, and that you’ll fail to detect the suspicious behavior.
How to Respond to Gift Card Fraud
Spotting gift card fraud is only the first step. What ultimately matters is how you react and respond to it. What steps should you take? Who can you reach out to? Here are some pointers:
Create an Incident Response Plan
Before fraud strikes, you’ll need to develop a clear, documented plan. This plan should outline the exact steps your team will take, from initial detection to final resolution. It should specify who is responsible for each task, how to preserve evidence, and procedures for escalating issues.
Deactivate & Block Cards
The moment you confirm a gift card transaction is fraudulent, take immediate action. First, deactivate the associated gift card to prevent further loss of funds. Then, block the buyer’s account, IP address, and payment methods linked to the fraudulent activity to prevent repeat attacks.
Communicate With Your Customers
Be transparent with any legitimate customers who may have been impacted. Proactively inform them of the situation, explain the steps you are taking to protect them, and provide clear instructions on what they need to do. Be candid and don’t mince words; customers can tell if you’re trying to downplay the situation.
Cooperate With Law Enforcement
Fraud is a crime… so treat it like one. Report the incident to the appropriate authorities, such as local police and the FBI’s Internet Crime Complaint Center. Provide them with all transaction records and evidence you’ve collected. It’s at this point in the process where your potential obligation to file Suspicious Activity Reports (SARs) for certain transactions may come in handy.
Mitigate & Recover Losses
After neutralizing the immediate threat, focus on damage control. Work with your payment processor to manage any resulting chargebacks. Review the incident thoroughly to understand how the gift card fraud occurred, identify gaps in your current security setup, and use these insights to upgrade and strengthen your defenses against future attacks.
