Gift cards are as popular as ever – both among consumers and fraudsters. So today, proactive gift card fraud prevention is a must for any business that uses them. After all, you don’t want your customers or employees to get scammed.
Take Haasai, who had been gifted $500 and who took her family to the store, only to find the gift card’s balance empty at the checkout counter. Her experience, shared on NBC News, was a nightmare and led the mother to choose ‘safer’ gifting options.
Evidently, gift card scams do more than incur financial losses to the fraud victims. Businesses whose gift cards are tampered with suffer:
- Loss of customer trust, especially if their personal data or gift card balance has been compromised.
- Brand reputation damage and loss of loyal customers as these cases become more frequent and known.
- Potential legal regulatory issues for failure to protect customers, which can include legal liabilities and penalties.
The unfortunate fact is that gift card fraud is rampant. Reported losses from prepaid card and gift card card fraud in the US amounted to $216.6 million in 2023, according to data from the Federal Trade Commission.
Nearly a quarter (23%) of US consumers report to have received a gift card with zero balance, a study from non-profit AARP revealed. More than half (54%) of those who had received an empty gift card could not get their money back.
Fortunately, your business and customers can be protected from scammers. But how to prevent gift card fraud?
In this article, we discuss why and how scammers target gift cards, plus the 7 best ways of gift card fraud prevention. We cover:
- Utilize strong authentication
- Limit the number of gift card purchases
- Implement stricter gift card activation rules
- Don’t accept gift card payments from guest accounts
- Place a limit on the gift card balance
- Use advanced fraud detection
- Partner with a trusted payment provider
Read on for the ins and outs of gift card fraud prevention.
[How safe and fast are your payments? Schedule a free assessment with Berkeley Payments and learn how to integrate secure real-time payments into your business ecosystem.]
Are gift cards traceable? Why and how fraudsters target your gift cards
Last year, gift card sales grew by 10%. The use of gift cards is set to grow even more – with the market set to hit a combined annual growth rate (CAGR) of 12.87% between 2023-2027, according to research firm Technavio.
While this payment trend is great for businesses utilizing gift cards, it also means there’s a growing danger of gift card fraud hitting your customers.
Scammers love gift cards because they are easy to buy, almost impossible to trace or refund, and can be treated like cash.
Fraudsters prefer different types of gift cards, but the most common scams are Target gift card fraud, Google Play, eBay, Amazon, and Walmart gift card fraud. Apple’s gift cards attract the most fraud activity, according to a survey held by the FTC.
Source: Federal Trade Commission (FTC)
So how does gift card fraud work exactly? Turns out, there are many ways in with fraudsters work to scam gift card users.
David Fletcher, who is fraud management company Clearsale’s senior vice president, commented that “combating gift card fraud is challenging because criminals have figured out so many ways to go after card data.” Fletcher went on to explain that “[scammers] often target individual consumers directly by impersonating the IRS, their utility company or another critical institution via phone call, text or email.”
In the case of in-store gift cards, the typical zero-balance gift card situation occurs through tampering with the retailers’ card information.
The fraudster steals gift cards from a shop rack, peels back any stickers and copies the numbers before sticking a new barcode on them. They then place the physical gift cards back in a rack, ready for an unwitting customer to put their own money on a manipulated card for the criminal to steal.
Another way of tampering with physical gift cards is to cut gift card numbers off in-store with a pair of scissors. They then use those numbers as soon as a gift card is activated at the checkout counter when bought by an unsuspecting customer.
Other common gift card scams include any form of phishing, deception, or social engineering where fraudsters request gift cards as a method of payment. Again, gift cards are a popular method of payment because they are virtually untraceable.
These gift card fraud schemes usually work like this:
- The scammer contacts the victim on their phone number, email, through text or social media, posing as a legitimate entity such as a government agency, utility company or tech support. They might even pose as a family member.
- The scammer claims to have an urgent issue that requires immediate payment. This could be anything from an unpaid bill, tax debt, or computer virus, to some injury or accident.
- The scammer instructs the victim to buy gift cards from popular (ecommerce) retailers and card issuers. They may even give a specific amount and type of gift card to buy.
- Once the victim has bought the gift vouchers, the scammer asks for gift card numbers and PINs by phone or email. This then gives the scammer access to the balance on the gift card.
- The fraudster vanishes after having obtained the gift card details, leaving the cardholder with a zero balance and no recourse to recoup the lost money.
- The scammer quickly transfers the money or sell the stolen gift cards, making it extremely difficult to trace or undo the transaction.
Now that you better understand how scammers target your customers’ gift cards, let’s address how to avoid gift card scams.
7 gift card fraud prevention tips for your business
Even if you understand how to prevent payment fraud and have strong security in place, your customers might still suffer from gift card scams.
The following tips can protect your customers from fraudsters attempting to empty their gift card balance.
1. Utilize strong authentication
Putting strong authentication measures in place is key to preventing gift card fraud. Whenever your customers activate or use gift cards, ask them to provide additional information, such as a PIN or a security question.
You could consider using multi-factor authentication (MFA) for online gift card transactions. For example, ask for a combination of passwords, one-time codes, or biometrics.
By adding multiple layers of security, you make it harder for scammers to access and misuse gift card information.
2. Limit the number of gift card purchases
To effectively prevent the laundering of stolen money using gift cards, you could set limits on the number of gift cards a customer can buy or the number of transactions they can make within a certain time frame.
This method deters fraudsters from laundering money with gift cards as no large amounts of money can be quickly transacted using, for instance, using stolen credit cards or other fraudulent methods.
3. Implement stricter gift card activation rules
Another way to minimize the risk of gift card fraud is to set strict activation rules for your gift cards. This way, only legitimate customers can activate and use your gift cards.
For example, you could require customers to present a valid ID or proof of purchase when activating a gift card in-store. For online activations, consider introducing a waiting period before the gift card becomes usable, giving you time to detect and prevent fraudulent activations.
4. Don't accept online gift card activations from guest accounts
To further lower the risk of gift card fraud by cybercriminals, avoid accepting gift card payments from guest accounts or unauthenticated users.
Instead, make it a requirement for customers to create an account and provide valid identification before allowing them to purchase or gift vouchers online or use them as a payment method. This can help you track customer activity and identify suspicious behavior more easily.
5. Place a limit on the card balance
Simply by setting a maximum balance on your gift cards, you can minimize the financial incentives for scammers to use gift cards as a tool for fraud and money laundering.
Moreover, capping the amount that can be loaded onto a single gift card will help you limit potential losses if a fraudster gains access to card details.
You could also consider introducing daily or monthly spending limits to further protect your business and customers from large-scale fraud attempts.
6. Use advanced fraud detection
Invest in advanced fraud detection software that allows you to monitor gift card transactions in real time and identify suspicious activity. These tools use AI in payments analyses, machine learning algorithms, and data analysis to detect patterns and anomalies that may indicate gift card fraud.
Using technology to improve your fraud detection and prevention, you can quickly identify and prevent fraudulent transactions, minimize financial losses and protect your customers' gift card balance.
7. Partner with a trusted payment provider
By working with an experienced payment solution provider, your business gets access to secure gift card automation with the latest fraud prevention technologies, analytics capabilities, and security expertise.
Berkeley Payment offers secure and fast, real-time transactions for your employees and/or users.
[Want to improve your payment ecosystem with gift cards? Explore Berkeley Payments' payment solutions and seamlessly integrate secure gift card automation with your existing systems to provide users with next-gen payment options.]
