Preventing Gift Card Fraud

As the holiday shopping season approaches, retailers face an increased risk of fraud alongside the surge in sales. One potential source of fraud that should be on every retailer’s radar is gift card fraud.

Both the Federal Trade Commission and the 2023 National Retail Security Survey report a sharp rise in gift card scams in recent years. In fact, 57% of the 177 retail brands responding to the National Retail Security Survey reported an increase in gift card scams from 2022 to 2023. And just this year alone, the Federal Trade Commission has documented nearly 20,000 instances of gift card fraud, to the tune of nearly $100 million.

In addition to the financial impact of fraud, gift card scams can damage your businesses reputation and make customers hesitant to shop with you in the future. As part of your practice for readying your store for the holidays, it’s important to consider what strategies you’ll adopt to prevent gift card fraud.

Some potential preventive measures include:

►  Enhance Website Security: If you sell gift cards online, implement measures such as captchas, firewalls, and monitoring systems to detect and deter fraudulent activities.

►  Require More Information: When selling gift cards online or in-person, collect additional customer information during gift card purchases to verify legitimacy and deter fraudsters.

►  Set Purchase Limits: Establish transaction limits for gift card purchases to prevent abuse and identify suspicious activities.

►  Secure packaging: Adopt tamper-evident gift card packaging to make it harder for fraudsters to manipulate the cards.

►  Keep gift cards behind the counter: Cards left out in the open are ready targets for scammers who will record the card and pin numbers and return it to the displace. When the card is legitimately loaded with a balance, the scammer can use it to make online purchases and drain the funds without being detected

►  Use Gift Card Trackers: Gift card software lets you track gift card sales, activations, and redemptions in real time, helping prevent fraud and providing detailed reports on card usage. Be sure to make the use of trackers known to both in-store and online customers to deter fraudulent usage.

►  Monitor Gift Card Trading Platforms: Merchants should check gift card trading platforms such as CardCash and Cardtonic, from time to time to ensure that there are no gift cards from the store. 

►  Train your staff: Conduct training sessions for store personnel and loss/asset prevention teams to spot tampering activity, compromised card packaging, and to reinforce the importance of verifying identities and conveying the fraud prevention measures in place.

If your business falls victim to—or even if you just suspect—gift card fraud, report it immediately to your local police department and file a report with the Federal Trade Commission to prevent future crimes.

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.