Aug 26

Detecting and Preventing Gift Card Fraud

Gift cards are popular go-to presents for birthdays and holidays. But businesses must be wary of gift card fraud, and know how to detect and prevent it.

A surefire way to encourage trial, foster brand affinity, and ultimately, grow your business, is through offering gift cards. They allow the recipient to buy whatever tickles their fancy — everyone loves receiving gifts they actually want! — and prompt trial and purchase from people who have never purchased from you before.

However, gift card fraud is on the rise as well. According to the Federal Trade Commission, approximately 40,000 people lost a cumulative $148 million due to gift card fraud within the first nine months of 2021 alone. But these figures could very well be higher as many cases are not reported to the authorities.

With so much at stake, you’ll need a safe and secure way to use gift cards for your business. In this blog, we cover the basics of what you need to keep an eye out for fraud.

What is Gift Card Fraud?

Gift card fraud is the act of exploiting customers who have purchased gift cards or prepaid cards by fraudulently obtaining the value of the gift card or the prepaid card through different methods, much like stealing cash. After all, gift cards and prepaid cards are as good as cash at the applicable businesses. Once they have redeemed the value of the gift card, fraudsters can use the “money” to make their own purchases from the store or re-sell them at a profit.

Gift card fraud is a rampant problem for both businesses and consumers, with a myriad of factors making them so appealing to fraudsters. For instance, it’s an anonymous form of stealing because unlike credit or debit card fraud, purchasing and using a gift card typically does not require proof of identity. Most businesses on a hybrid mode allow gift cards to be used both in-store or online, which makes them vulnerable to online attacks. Reselling gift cards is also lucrative as many choose to gift friends and loved ones with gift cards from their favorite retailers to ensure they get something they like.

A shopper using a gift card to buy online

How Fraudsters Commit Gift Card Fraud

Gift card fraud may look a little different from other forms of petty theft, so business owners and customers need to know what to look for. Here are some common gift card fraud modus operandi.

1. Tampered Gift Card Packaging

This type of gift card scam is performed at physical stores. The fraudsters carefully take the gift cards out of the packaging, note the PIN, then put the gift card back into the packaging as if nothing happened. Even gift cards with a protective covering to hide the PIN can be tampered with. For example, protective stickers can be replaced good as new, or gift cards with scratchable strips can be repainted over.

After obtaining the gift card numbers, the fraudsters check the gift card balance to see if they have been purchased and activated. Once the card is active, they quickly make a purchase and drain the gift card before the customer (or the intended recipient of the gift card) is any the wiser.

2. Social Engineering

Have you ever received a suspicious call from an unknown number claiming to be from a popular brand or service and saying that you must urgently pay for an outstanding bill you didn’t even know about? The same thing can happen in gift card fraud! In a typical gift card scam call, the scammers often say that you must:

  • Pay right away, and if you don’t, there will be consequences.
  • Purchase a specific gift card from a specific brand or retailer.
  • Share the gift card number and PIN.
A frustrated caller

3. Chargebacks

This involves scammers buying products using a stolen credit card, then returning it to the store in exchange for a refund via gift card. Because gift cards are essentially as good as cash, this method enables the scammers to get the cash value before the card owner can file for a chargeback.

4. Brute Force Via Bots

Expert cybercriminals and gift card scammers use special software to run possible combinations for gift card numbers and PINs. Gift cards do not require identity verification so they are typically easier to crack. This is why many retailers only allow gift cards to be used in-store or only send the gift card’s balance information through direct channels like email and SMS.

5. Double Dipping from Resold Gift Cards

Some fraudulent gift card resellers “double dip” by supposedly selling a gift card online but using the balance before the buyer can. They do this by reselling supposedly unwanted gift cards online and, instead of sending the physical card to the buyer, they simply send the gift card code. Once a gift card code is purchased, the fraudster quickly makes a purchase, effectively using the card balance before the buyer can.

How to Detect and Prevent Gift Card Fraud

Businesses can detect and prevent gift card fraud with these tips:

For Businesses:

  • Implement a gift card tracking system: A POS system can help you log every purchase made from your store, so you know when a gift card is purchased and used.
  • Strengthen refund and exchange policies: Have stricter R&E policies, especially on exchanging purchased products for gift cards. For example, set rules of when and why customers are allowed to return and exchange their purchases, and what they can exchange them for. Instead of gift cards, they might be permitted to trade a purchase with a product of equivalent value or the same product in better quality. 
  • Reduce the risk of in-store gift card fraud: -Some retailers sell physical gift cards at the register instead of on the store floor, so customers must ask for one directly, significantly reducing the risk of gift card tampering. 

For Customers:

  • Know the signs of a gift card scam call: Be wary of callers claiming to be from popular companies or government agencies, demanding payment via gift cards. Some scammers go the emotional route by posing as close friends of your family members, or a new online flame in need. If they are pushing to receive payment urgently, threatening you with consequences, and insisting to be paid via gift cards only, it’s likely a scam. 
  • Check the gift card packaging: If you’re buying a gift card in-store, make sure to check the packaging before paying. Even if the gift card number or PIN is covered, any sign of damage on the card or its packaging might indicate that it’s been tampered with. You’re better off getting one in pristine condition instead. 

From efficient transaction tracking to help reduce gift card fraud to inventory management, trust True POS to deliver a tailored solution for your business. Contact us for a free quote today!

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