Gift Card Fraud Prevention: Types, Examples & Detection

According to Federal Trade Commission report indicates that scammers predominantly favor gift cards as their primary payment method. This preference has resulted in consumers reporting a staggering $148 million in stolen funds.

If gift card fraud is prevalent, you should learn how to protect yourself and your business from these scams. In this article, we will tell you how with 22 strategies for gift card fraud prevention.

Exploring Gift Cards & Gift Card Fraud

A gift card is a prepaid stored-value card that can be used as an alternative to cash for purchases within a particular store or group of affiliated stores. They are typically issued by retailers or financial institutions and can be loaded with a specific amount of money, which the recipient can then spend at the designated store or online platform.

Gift card fraud refers to any criminal activity involving the illegal acquisition, use, or manipulation of gift cards for financial gain. This can occur through various methods, including theft, counterfeiting, skimming, phishing, or exploiting vulnerabilities in the gift card system.

Types of Gift Card Fraud & How They Work

Each of these types exploits vulnerabilities in the gift card system, whether through physical theft, technological manipulation, or social engineering tactics. Here are some common types of gift card fraud and how each of these types work:

1. Counterfeit Gift Cards

‍Criminals create fake gift cards or replicate legitimate ones, which they then sell or use to make purchases before the fraud is detected.

2. Stolen Gift Cards

‍Thieves steal physical gift cards or obtain gift card information through hacking or other means. They may then use the stolen cards to make purchases or sell them to unsuspecting buyers.

3. Card Skimming

‍Criminals use skimming devices to steal information from gift cards at the point of sale, allowing them to create duplicate cards or use the stolen information to make purchases online.

4. Phishing Scams

‍Fraudsters use deceptive emails, text messages, or phone calls to trick individuals into providing gift card information or codes. They may impersonate legitimate businesses or individuals to gain trust and convince victims to hand over their gift card details.

5. Resale of Fraudulently Obtained Gift Cards

‍Criminals may sell gift cards obtained through fraudulent means on online marketplaces at discounted prices, luring unsuspecting buyers into purchasing stolen or illegitimate cards.

6. Return Fraud

‍Some individuals engage in return fraud by purchasing items with a gift card and then returning those items for cash or store credit, essentially turning the gift card into cash.

7. Account Takeover Fraud

‍ In account takeover fraud, fraudsters gain access to account login credentials and use them to purchase gift cards. This exploits the immediate delivery and usability of digital cards. 

8. Bots Brute-forcing Card Numbers

‍Criminals use bot networks to guess card numbers, leading to stolen gift cards and potential disruption of online services.

9. Card Not Present Fraud

‍Scammers use stolen credit card information to purchase gift cards without the physical card, AKA card not present fraud. This leads to chargebacks for merchants.

Examples of Common Gift Card Scams

Scammers use various tactics to persuade you to purchase gift cards, ultimately aiming to steal your money. These schemes capitalize on people's trust and sense of urgency. Below are some prevalent gift card scams:

1. Government Impersonation

‍Scammers pretend to be from government agencies like the IRS or Social Security Administration, claiming you owe taxes or fines. They demand payment through gift cards, which legitimate agencies never do.

2. Tech Support Scams

‍Impostors posing as tech support agents from companies like Microsoft or Apple say there's an issue with your computer and ask for payment via gift cards to fix it. Legitimate tech support doesn't request payment in this manner.

3. Emergency Impersonation

‍Scammers impersonate friends or family members, sometimes using voice cloning, claiming to have urgent needs, and asking for money through gift cards. Always verify with the person directly if you receive such requests.

4. Prize Scams

‍Scammers claim you've won a prize but insist you pay fees or charges using gift cards first. Legitimate prize givers won't require payment this way, especially if you didn't even enter a contest.

5. Utility Company Threats

‍Impersonating utility companies, scammers threaten service disconnection unless immediate payment via gift cards is made. Legitimate utility companies don't demand payment in this way.

6. Romance Scams

‍Scammers on dating websites fabricate stories to convince victims to buy gift cards and send them money. Never send money or gifts to someone you haven't met in person, regardless of the story they tell.

7. Overpayment Scams

‍Scammers send fake checks for large amounts, instructing recipients to deposit the check and return the excess amount via gift cards. The check is fake, leading to financial loss if followed through. 

The Impact of Gift Card Fraud

The impact of gift card fraud can be significant for both individuals and businesses, here is how:

1. Financial Loss: Gift card fraud can result in financial losses for both consumers and businesses. Individuals who fall victim to scams may lose the money they spend on purchasing gift cards, while businesses may incur losses from fraudulent transactions or chargebacks associated with compromised gift cards.

2. Loss of Trust: Gift card fraud can erode trust between businesses and consumers. Victims of scams may feel deceived and lose confidence in the businesses where they purchased the gift cards. This loss of trust can have long-term consequences for customer relationships and brand reputation.

3. Operational Costs: Businesses may incur additional operating costs associated with investigating and resolving gift card fraud incidents. This can include implementing security measures to prevent future fraud, training staff to recognize and respond to suspicious activity, and handling customer complaints and inquiries related to fraudulent transactions.

4. Legal and Regulatory Consequences: Businesses may face legal and regulatory consequences if they fail to protect their customers from gift card fraud. Depending on the jurisdiction, businesses may be held liable for losses resulting from fraudulent transactions and may face fines or other penalties for inadequate security measures or negligence.

5. Negative Publicity: Incidents of gift card fraud can attract negative publicity, damaging a business's reputation and credibility. News of fraud incidents may spread quickly through social media and other channels, leading to public outcry and further undermining consumer trust in the business.

22 Strategies for Gift Card Fraud Detection and Prevention

Gift card fraud prevention and detection involves implementing various strategies and techniques. You’re asking how tohow to how to prevent gift card fraud. Here are some effective methods for gift card fraud detection and prevention:

1. Transaction Monitoring: Regularly monitoring gift card transactions for unusual patterns or suspicious activity can help detect fraudulent behavior. Look for multiple transactions in a short time period, unusually large purchases, or purchases made in locations far apart from each other.

2. Behavioral Analysis: Analyzing customer behavior and transaction history can help identify anomalies that may indicate fraudulent activity. Look for deviations from typical spending patterns, such as sudden increases in spending or purchases in unusual categories.

3. Fraud Detection Software: Utilize fraud detection software. These systems can analyze transaction data in real-time, automatically flagging suspicious activity for further investigation.

4. Verification Protocols: Implement verification protocols for high-risk transactions, such as requiring additional identification or authentication measures for large or unusual purchases. This can help ensure that legitimate customers are making the transactions.

5. Training and Awareness: Educate employees about the signs of gift card fraud and provide training on handling suspicious transactions. Encourage employees to be vigilant and report any unusual activity to management or security personnel.

6. Customer Communication: Communicate with customers about the importance of safeguarding their gift cards and being cautious of potential scams. Provide tips on how to recognize and avoid gift card fraud, such as not sharing card information with strangers and verifying requests for payment.

7. Data Analysis: Analyze historical transaction data to identify trends and patterns associated with gift card fraud. Use this information to refine fraud detection algorithms and improve the effectiveness of fraud prevention measures.

8. Strengthen Return Policies: Set limits on returns and refunds to deter fraudulent activity.

9. Stricter Gift Card Activation Rules: Implement policies requiring in-person activation of gift cards to detect tampering.

10. Require Strong Authentication for All Account Activity: Enhance account security by requiring strong authentication methods for all customer activity.

11. Limit the Purchase of Gift Cards: Restrict the number of gift cards sold per customer or transaction to prevent bulk purchases by fraudsters.

12. Don’t Take Gift Card Payments on Guest Checkouts: Require customers to create accounts before purchasing gift cards to enhance security.

13. Use Fraud Prevention Software: Employ fraud management solutions with risk rules to analyze and assess the risk level of gift card transactions.

14. Increase Website Security: Implement measures to enhance the security of online platforms and prevent unauthorized access.

15. Require More Information from Customers: Gather additional information from customers during gift card purchases to verify their identity.

16. Add Identity Verification Steps: Implement identity verification steps to ensure the legitimacy of gift card transactions.

17. Place Limits on Large or Repeated Gift Card Purchases: Set limits on the size or frequency of gift card purchases to deter fraudulent activity.

18. Run User Fingerprinting Tools: Utilize user fingerprinting tools to identify and track suspicious users and activities.

19. Leverage BIN Lookups: Use BIN (Bank Identification Number) lookups to verify the legitimacy of gift card transactions.

20. Deploy Card Activation Limits: Set limits on the number of gift cards that can be activated within a specific time frame.

21. Use a Gift Card Tracker: Implement a gift card tracking system to monitor the issuance, activation, and usage of gift cards.

22. Monitor Gift Card Trading Sites: Keep an eye on gift card trading sites to detect and prevent the resale of fraudulently obtained gift cards.

Conclusion

In conclusion, gift card fraud can have far-reaching consequences for both individuals and businesses, impacting financial stability, trust, operational efficiency, and reputation. Preventative measures, such as implementing strong security protocols and educating both employees and customers about the risks of fraud, are essential to mitigate these impacts.

If you want to learn whether your business is prone to fraud attacks and how to protect it against them, Download our E-Book, 'Mastering Fraud Prevention'.

FAQs

Q1. How can businesses ensure the security of gift cards and prevent fraud?

Gift card security is crucial for protecting businesses and customers from fraud. Measures like secure packaging and activation prevent physical tampering, while encryption technology safeguards digital gift cards. Regular monitoring of transactions helps detect suspicious activity early. By prioritizing gift card security, businesses can build trust and ensure the integrity of their gift card fraud prevention programs.

Q2. What to do if you give a gift card to a scammer?

Report the scam to the gift card issuer immediately and provide any relevant details. If you've been scammed after providing gift card details, take immediate action. Contact the gift card company to report the scam and request a refund. Also, notify the authorities by submitting a report on their website. 

Q3. Can stolen gift cards be refunded?

Stolen gift cards typically cannot be refunded. Once activated, the funds on a gift card are usually non-refundable and non-transferable. 

Q4. Can fraudsters go to jail for using stolen credit cards?

Yes, using stolen credit cards is illegal and can result in criminal charges. If convicted, fraudsters may face imprisonment, fines, or other penalties, depending on the severity of the offense and applicable laws.

Q5. Can gift cards be traced?

Gift cards can be traced sometimes, but it depends on various factors, including the policies of the issuing company and the circumstances of the case. While some companies may have tracking capabilities, they are not guaranteed, and tracing may be challenging or limited in certain situations.