Gift card fraud is so ubiquitous today that Maryland recently passed sweeping legislation to help combat this multi-million-dollar (potentially billion-dollar) scam. So why is gift card fraud on the rise? There are two main reasons:
- Gift card fraud is so rampant because of the sheer number of gift cards in circulation in the US alone. In 2023, Americans spent around $275 billion on gift cards annually – a number projected to continue rising exponentially.
- The ease with which gift cards are obtained. Today, most grocery stores, convenience stores, and big box stores have displays where gift cards can be purchased for various retail brands, making it easier for scammers to target multiple brands simultaneously.
Understanding gift card fraud
Gift card fraud takes many forms, but at its core, it involves the unauthorized use of someone else’s gift card—whether voluntarily or by force—to make purchases. Ultimately, gift card fraud (or gift card scams) is a lose-lose for retailers because not only do their reputation and trust with customers take a hit, but they often result in chargebacks and a loss of revenue.
Gift card fraud is executed by stealing physical gift cards, accessing and using a stolen gift card’s account data off the dark web, using stolen credit cards to buy gift cards, or digitally attacking the gift card redemption steps on a retailer’s website. Thieves and organized retail crime (ORC) rings target gift cards because they can be easily manipulated physically or digitally. Sometimes, gift cards are stolen from a physical location to buy items, which are returned or flipped for cash. But increasingly, gift card fraud involves digital bots performing relentless attacks to access gift card numbers from a retailer’s website or continually testing various combinations of gift card numbers to drain the gift card balances.
The recent arrest of a 28-year-old woman in Washington State serves as a stark reminder of the scale of devastation that gift card fraud can cause to retailers and their customers. Another instance of gift card fraud included over 100 victims at one soft apparel retailer who lost $100,000 in gift card value. The increase in gift card scams and fraud cases highlights the gravity of this issue and the need for increased awareness and prevention measures.
Recognizing red flags and preventing gift card scams
Two ominous warning signs regarding gift card fraud are “scarcity of funds” and “forced payment.”
- Scarcity of funds – If a consumer goes to use a new gift card and there is a scarcity of funds available, that is a red flag that the card has been compromised. Thieves most likely copied the code off the gift card, put it back on the rack, and waited until a cashier activated it to drain the funds.
- Forced payment – The second warning sign is a customer who insists on only using gift cards as their form of payment. This is another major red flag because gift cards are given to be used as one-time gifts, not as a consistent and regular source of payment.
For retailers, proactive training is essential to ensuring employees are adept at preventing gift card fraud (or gift card scams). Solutions like Appriss Retail’s Secure™ Coach module allow retailers to audit their employees for training compliance and identify associates needing additional supportive training. With Secure Coach, retailers can manage associate knowledge of gift card fraud and enforce customer-facing behaviors to better educate consumers purchasing gift cards or identify scammers who may be trying to pull a fast one with a stolen gift card.
The role of technology in gift card fraud prevention
Retailers must leverage data analytics and machine learning in gift card fraud detection to level the playing field against the vulnerabilities that can be exposed during gift card scams. A retailer’s employees have deep insider knowledge of store procedures, including gift card activation and transaction processes, making them vulnerable to exploitation by fraudsters, or even more likely to commit fraud themselves.
In some cases, employees may collude with external fraudsters, assisting them in committing gift card scams. With Appriss Retail’s AI-powered Engage™ platform, the retailer is immediately alerted to fraudulent behavior and facilitates an automated validation process to thwart potential fraud. The system also reviews employee IDs and transaction data at a macro level to identify unusual behavior and uncover those associates attempting gift card fraud. Additionally, retailers can use data analytics paired with machine learning to recognize the patterns, unusual transactions, and returns associated with gift card fraud.
Data analytics that can detect patterns across an entire retail chain are mission-critical because gift card fraud is rarely a one-off petty crime; it is often carried out by organized retail crime (ORC) rings. Recently, eight individuals were ordered to pay 2.3 million dollars in restitution to various major retailers. This Detroit-based organized retail crime ring was caught using stolen credit card data from the internet to purchase in-store gift cards, which were then sold for cash on the streets. Retailers who track and apprehend these types of scammers need to work hand-in-hand with law enforcement to meet the $1,000 threshold to make the crime a federal matter.
Reporting gift card fraud and seeking help
If you feel like your customers or even you have been the victim of a gift card scam, report it immediately.
- Report it to the gift card issuing company – For retailers, this may be your internal Loss Prevention (LP) or Asset Protection teams. Provide your LP team with the details related to why you believe this customer is the victim of a gift card scam. If your Loss Prevention or Operations teams are leveraging a solution like Engage from Appriss Retail, it will be very easy to begin piecing together the narrative as to what occurred with the gift card.
- Demand and issue a refund – Once a gift card scam has been verified, ask for your own or your customers’ money to be refunded. This is a good internal topic to discuss, as some brands find that refunding with cash may have been the scammer’s plan all along.
- Report the gift card fraud to the FTC – If you’re a consumer affected by gift card fraud, you can visit ReportFraud.ftc.gov and potentially the Better Business Bureau if the retailer you are working with is hesitant to issue a refund and you want to elevate the issue to a third-party option.
To learn more about gift card fraud and gift card scams, watch this short but informative video created by the Federal Trade Commission (FTC).
Boost your retail security with actionable insights—read “Enhancing Retail Security: Combating ORC with Advanced Consumer Linking” to arm your team with the critical strategies and safeguard your store.
