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Finance glossary

What is gift card fraud?

Bristol James
7 Min

Everyone’s favorite convenient gift – a gift card – comes with endless possibilities. Gift cards can be purchased for restaurants, clothing stores, electronic stores, and even spas. They’re a great way to make sure that family and friends get gifts they actually want, but unfortunately they’re also becoming a go-to tool for scammers.

Gift card fraud is when fraudsters use gift cards instead of cash or other monetary channels to manipulate or trick businesses and individuals. Oftentimes, these scammers convince people to send them gift cards or “pay” for certain services with compromised gift cards. It doesn’t stop there; even retailers that sell gift cards are vulnerable to fraud. Gift card scams can take many different forms, and we’ll cover all the most common gift card scams in detail. To many, gift card fraud almost feels fake but the financial impact is very real.

In 2022, U.S. consumers reported 48,800 instances of gift card fraud, resulting in more than $228 million in losses. Unfortunately, in 2023, the number of reported gift card scams went up by 50%. Because gift cards are treated like cash but are very hard to trace, scammers have grown quite fond of exploiting Visa gift cards, Target gift cards, and any other physical gift card that they can. Both individuals and businesses need to be smart when it comes to these schemes, and this is the place to start.

How gift card fraud happens

No one thinks they’ll fall victim to a gift card scam, but it happens to the best and the brightest every single day. Remember, scammers spend their days figuring out how to cheat the system and take advantage of good people. The best way to avoid common gift card scams is to understand them – let’s dive in.

Physical Tampering

For stores or retailers that sell gift cards to consumers, the physical tampering of gift cards is a major risk. Sometimes, a scammer will copy the gift card number and the gift card code onto other cards. Then, when a customer buys and activates one of the “copies,” the scammer has access to the funds loaded on the card.

Even without copying the details from one gift card onto other gift cards, scammers can simply write down the card number and activation code, using special stickers to cover up the fact that they scratched the cover off of the activation code. Then, when those cards do get purchased and activated, they can promptly access the funds loaded on them. 

Stolen CC Details

This is the most rampant form of gift card fraud. If a scammer gets ahold of someone’s credit card information, they can use that person’s card to buy a bunch of gift cards and spend the money on them before a fraud claim is filed with the victim’s credit card company. Known as “gift card draining” this fast act of using the gift cards up is what makes financial recovery so challenging in instances of gift card fraud.

For retailers that are seeing reoccurring cases like this, investing in software tools and staff training can go a long way to prevent this scam. Anti-fraud tools and risk assessment tools will help flag suspicious purchases.

Phishing & Social Engineering

An up-and-coming form of gift card fraud is taking businesses for a wild ride. Using phishing and social engineering tactics, scammers will send emails to a company’s employee, pretending to be the CEO or someone in a leadership role. In the email, the “CEO” will ask their employee to purchase gift cards and send them the information for a team event, raffle, or a different reason.

When receiving direct instructions from a higher-up, most people don’t take the time to verify the ask. Instead, they complete the task quickly, send the information on the gift cards, and feed right into the scammer’s plan, leaving the employee’s personal bank account or their corporate card on the hook for the charges. 

Phony Refunds

If a customer brings a product in with the intention of returning it but asks for the funds to be put on a gift card instead of the credit card it was purchased with, it’s possible they’re initiating an elaborate rouse.

Let’s say a scammer got ahold of a stranger’s credit card information and used it to purchase a pair of shoes. If they bring the shoes into the merchant to make a return and the merchant agrees to put the returned funds on a physical gift card, then by the time the original credit card company files a chargeback for the theft that took place, the scammer has already spent the funds on the gift card. This scam leaves retail stores and credit card companies on the hook financially.

Stolen Gift Card Numbers

Merchants that sell gift cards in-store or online usually have electronic records of the gift card numbers and activation codes. By hacking into the merchant’s database or by using phishing against the employees, fraudsters can get a list of the card numbers and activation codes. With that information, they can spend the money on the cards, essentially tapping into an endless source of cash.

Why scammers use gift card fraud

Gift card schemes have been around since gift cards became popular, but they’ve gotten more sophisticated with time. There are multiple reasons that scammers keep going back to gift cards to defraud people and businesses.

Easy Wins

Gift cards are popular because they are easy gifts to give, but as it turns out, they’re also easy money for scammers. There are many ways to access the funds loaded on gift cards, and since they can be used online or in person, draining the funds before the ploy is detected is easy.

Hard to Trace

Gift cards are completely anonymous. It’s hard to track who purchased them, and the funds usually cannot be recovered once they are spent. The anonymity component of gift card scams is a large part of what makes them so popular. How can law enforcement reprimand criminal behavior if it’s impossible to tell who is behind the scam?

Irreversibility

Once gift cards are empty, there aren’t many ways to reverse the transaction. Not only does this make it hard for victims to recover the funds they should have been able to use, but it also makes it difficult for merchants to reverse the transaction. In some cases, reaching out to the gift card company directly is a good plan of action, but more often than not, their hands will be tied.

Location Agnostic

Scammers can commit gift card theft from anywhere in the world. Whether there is an identity theft component or it’s a more straightforward method, these schemes are location agnostic. With plenty of businesses and individuals around the world to prey on, gift card fraudsters are set for life – as long as they don’t get caught.

How to avoid gift card scams

Nobody wants to lose out on money that’s rightfully theirs. Gift card scams target businesses and individuals in slightly different ways, but with a few security measures in place, avoiding gift card scams is possible.

Education for Employees and Customers

Empowering the people closest to these scams with the knowledge needed to avoid them is one of the best forms of protection against gift card fraud. Store employees need to know what to look out for – odd return behavior, large gift card purchases, and phishing watch-outs are the main red flags in these schemes.

Customers need to have an understanding of gift card fraud, too. If a frantic call comes from the customer’s “grandma” stating that there’s an emergency and the only way to help is by sending gift cards, they should know to reach out to their loved one directly to verify the request before completing the transaction.

Airtight Transaction Monitoring

It’s true — scammers are getting more advanced, but so are the anti-fraud tools on the market. Software like Eftsure, a secure payment solution, can make tracking transactions easier and provide some systemic protection in high-risk purchasing situations. Monitoring and flagging batch orders of gift cards or frequent returners can help pull scammers out of the shadows and put an end to their behavior.

Advanced Security Features

Implement security features on gift cards to deter tampering and counterfeiting. This may include using scratch-off labels to conceal PIN numbers, embedding holographic or metallic elements for authentication, and employing unique serial numbers or barcodes for tracking and verification purposes. Additionally, customizable gift card designs or personalized messages can help mitigate risk.

Summary

  • Gift card fraud can take many shapes, but at its core, it’s when scammers use gift cards to steal money from individuals and businesses.
  • Scammers favor gift card fraud due to its simplicity, anonymity, irreversibility, and global reach. These factors make it an attractive avenue for illicit activities, posing challenges for law enforcement and victims seeking restitution.
  • Any merchant who offers gift cards is vulnerable to gift card fraud. Scammers don’t care who they’re impacting – Apple gift cards, Target gift cards, Visa gift cards, and more have all been exploited in these scams.
  • Avoiding gift card scams requires education for both employees and customers, robust transaction monitoring systems, and advanced security features on gift cards. Empowering individuals with knowledge and implementing proactive security measures are crucial steps in mitigating risk.

Background References:

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