Gift Card Scams Aren’t Going Away

Emily VuittonFraud Prevention2 Comments

Gift Card Scams

If you’ve been through a grocery store or a Target or Walmart checkout, you’ve probably seen the hoards of gift cards available for purchase. Unfortunately, it’s not just last-minute gift purchasers who rejoice at this sight. Fraudsters are using low-tech tactics, high-tech mishaps, and everything in between to turn a quick profit.

Low-Tech Tactics

For years fraudsters have been copying the numbers off gift cards in public displays, then wait for the card to be activated. Once an unsuspecting buyer loads the card, the fraudsters quickly drain the balance.

But, what about the safeguards put in place on the gift cards themselves, like scratch-off security panels? Fraudsters simply use Zebra Security Tamper Evident Scratch Off Labels Stickers, like the offering below found on Amazon, to cover up the scratched-off panel.

High-Tech Hiccups

In contrast to the low-tech gift card fraud route, the high-tech mishaps are capitalized on by fraudsters and puts much more data at risk. Data breaches and intentional hacks into a store’s gift card database can provide fraudsters with thousands of gift card identification numbers, security codes, and all the information they may need.

Just ask Australian supermarket Woolworths. On June 1, 2016, the retailer was forced to cancel more than AU$1.3 million in gift cards due to a data breach. Data for 7,941 online gift cards, or e-gift cards, was mistakenly sent to over 1,000 customers who had purchased an e-gift card through a deal on Groupon. Included in the compromised data were the names and email addresses of thousands of customers.

One Fraud Leads to Another

Fraudsters aren’t just sitting around waiting for another retailer to experience a technical mishap. Another tactic they use is purchasing an e-gift card online with stolen credit card information. If the transaction is successful (i.e. makes it through a merchant’s fraud filters) the fraudster can quickly resell the e-gift card for a quick cash profit.

Whether it’s through an online marketplace designed specifically for gift card resale or peer-to-peer listing websites where anything can be bought and sold, the gift cards are typically priced around 10 percent less than the stated value of the card. For fraudsters seeking an even quicker return on investment, they just need to offer a few more percentages discounted than the competition.

Electronic gift cards have the highest fraud attempt rate of all products sold, according to payments processor ACI Worldwide. The payments processor also reports that over last year’s holiday season, 9.5 percent of all attempts at fraud online were carried out on electronic gift cards.

Fraud from Legitimate Transactions

There is yet another way fraudsters target e-gift cards. Here, an electronic gift card is purchased using a valid form of payment. Just as with the previous tactic, the criminal resells the gift card for a quick profit. But this time, the fraudster disputes the purchase and initiates a chargeback. The fraudster now has a refund for the e-gift card amount and cash in-hand from the resale.

What is the unsuspecting buyer left with? An e-gift card that has zero value. Once the merchant receives the fraudster’s chargeback or a report of confirmed fraud, they’ll eliminate any remaining balance and freeze the card. Furthermore, an e-gift card purchased on a secondary market voids the cards issuing merchant from any responsibility in honoring of funds. But that doesn’t stop the buyer from contacting the original merchant and demanding the funds be reinstated to the card.

What can merchants do to protect themselves from e-gift card fraud? Frighteningly, according to market size and fraud rates reported by CEB/Tower Group and ACI Worldwide, 2016 will see $950 million lost to e-gift card fraud. Find out how to protect your business from electronic gift card fraud in our free Understanding and Avoiding E-Gift Card Fraud white paper.

Understanding and Avoiding e-Gift Card Fraud


Header Background Image via Flickr courtesy 401(K) 2012

2 Comments on “Gift Card Scams Aren’t Going Away”

  1. Pingback: Top 10 Reasons for a Product Return | Chargeback

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