What is Gift Card Fraud?Fraudsters Frequently Target Prepaid Cards. Here’s Why.
A Crash Course in the What & Why of Gift Card Fraud
Gift cards are essentially as good as cash. That’s because buyers pay upfront and receive a piece of plastic with stored value…making these cards prime targets for scammers.
Besides, gift cards are untraceable; they often aren’t linked to an account at a financial institution, and rarely have the cardholder’s name on them. Once they’re stolen, they’re essentially impossible to recover — a boon for gift card scammers. Here, we take a look at what gift card fraud is and how it works.
What is Gift Card Fraud?
- Gift Card Fraud
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.
[noun]/ɡift • kard • frôd/
Gift card fraud is a form of prepaid card fraud. It can happen when a bad actor targets a cardholder with an active gift card balance and, after stealing the gift card’s PIN and card number combination, the attacker drains the card’s balance by making unauthorized purchases at the business the gift card is associated with. The scammer may alternatively attempt to extract cash from the gift card by selling it to a third-party buyer.
Those are just a couple of examples. There are dozens of different tactics, and scammers are always coming up with new ones, as we’ll see in the next chapter.
Why Do Scammers Target Gift Cards?
Gift cards are a popular target for scammers for several reasons. First, they feature fewer card security features, as compared to credit and debit cards. This makes them easier to steal, and to use once stolen, than those bank-issued cards.
And, unlike their credit and debit card counterparts, gift cards lack chargeback protections for cardholders. This essentially means that transactions, whether fraudulent or not, are irreversible once completed.
At the same time, gift cards are typically anonymous. This makes it difficult to trace unauthorized activity back to the perpetrator and allows bad actors to easily disappear once they get their hands on stolen goods.
Another issue is that gift cards are prepaid, which means they function like cash. Active gift cards hold balances that can immediately be spent, which allows fraudsters to seamlessly convert stolen cards into products, services, or cash.
Less Secure:
Gift cards lack many of the built-in security measures present in credit or debit cards.
Irreversible:
A lack of chargeback protections mean that purchases made with gift cards are not reversible.
Anonymous:
Gift cards aren’t tied to the cardholder, so they can’t be traced to the scammer once stolen.
Prepaid:
Gift cards function like cash, allowing scammers to quickly convert stolen balances into goods or cash.
How Gift Card Fraud Works
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 the account number is legitimate, and that the account contains funds.
With just those two pieces of data, cybercriminals can purchase as much as the card balance will allow. They do this knowing that the cardholder may not discover the crime for weeks or months. Indeed, it may never be discovered at all.
We’ll dive into specific tactics in the next chapter. For now, just know that many of the more common schemes involve using:
