How to protect your business against gift card fraud

Gift card fraud is popular with criminals because funds are nearly impossible to trace. But there are several defenses against it.  

 

5 minute read

Key takeaways

  • Global gift cards sales are expected to reach $2 trillion by 2030
  • Their popularity has attracted criminals who target consumers, businesses and specific gift card programs
  • The right tactics can help combat some of the most advanced fraud techniques and strengthen the security of your gift card program

How many gift cards do you sell and process in a year? The data shows that consumers love them. More than half of respondents in a recent survey put gift cards at the top of their holiday wish lists, ahead of clothing, books and electronics.1 Unfortunately, criminals love them just as much. With the global gift card industry expected to reach $2 trillion by 2030,2 one crucial concern for businesses is ensuring that gift card revenue does not end up in the wrong hands.

 

“If criminals are good at anything, it’s finding and exploiting weaknesses,” said Joe Lamar, product management executive with Merchant Services at Bank of America. “As gift card programs reach new levels of maturity, businesses are having to reexamine their fraud prevention to better protect profits and their customers’ shopping experience.”

 

To help you strengthen the security of your gift card program, Bank of America’s merchant services’s team identified three key ways criminals are using gift cards to steal from customers and businesses — and steps you can take to help protect against them. 

"As gift card programs reach new levels of maturity, businesses are having to reexamine their fraud prevention to better protect profits and their customers’ shopping experience.”

1. Gift cards used for fraudulent cash transfers

 

“These cards make great gifts because they’re fairly easy to transfer from one person to another,” said Lamar. “Unfortunately, that makes the funds virtually impossible to trace which is why fraudsters are attracted to them as well.

 

The end goal of any fraud scheme is to transfer money from the target to the criminal, and gift cards are increasingly used to facilitate those transfers. This type of gift card fraud is usually initiated by a phishing email or phone call. Criminals can develop elaborate stories and rationales in order to convince people to load funds onto gift cards and forward the card numbers.

 

While criminals most often target everyday consumers, they are increasingly leveraging tactics such as emails to trick business employees.3 Here are a few ways to help protect your business and your brand from this type of gift card fraud. 

 

 

2. Manipulating gift card infrastructure

While cash transfer targets individuals, another type of fraud involves criminals directly targeting your gift card program as a whole. Through sophisticated tactics, criminals can gain intelligence about how cards are activated and balances are checked. They also can manipulate that system, often from inside your organization.

 

“From my experience, the higher rates of staff attrition at larger retailers allow criminals to easily penetrate an organization, learn policies and procedures, and start initiating fraudulent gift card-related activities,” said Lamar. “Obviously, this can affect your customers, your reputation and ultimately your business.”

 

In this type of scam, former employees may leverage insider knowledge – or be duped into providing such knowledge to criminals – in order to defraud your gift card program.

 

Businesses with larger footprints should monitor gift card transactions to spot out-of-the-ordinary activation, balance inquiries and usage. Here are a few actions to watch for and some strategies for protecting your business. 

 

3. Remotely harvesting gift card balances 

A more serious threat may involve criminals targeting gift card balances through highly technical hacking and querying techniques. Protecting your business from these types of crimes takes extensive monitoring and controls and may require outside expertise.

 

Depending on your business needs, you may need to develop and implement monitoring tools to help you flag suspicious gift card activity. Some of the more state-of-the-art solutions use machine learning and predictive algorithms that respond to suspected fraud activities in real time.

 

Some criminal tactics are as direct as stealing gift card numbers in-store before they’re activated, waiting for the cards to be activated through legitimate purchases, and then siphoning off the funds. Other tactics involve stealing large swaths of card numbers by penetrating corporate networks or predicting card number schemes with sophisticated algorithms.

 

Either way, there are several strategies at your disposal for protecting your business from these advanced techniques. 

 

Regardless of the risks, gift cards continue to appeal to customers, and their application as branding and customer retention tools will increase their usage for the foreseeable future. The rise of self-purchased gift cards alone tells us that customers are discovering new benefits in loading branded cards for themselves. As your company takes advantage of these emerging trends and changing behaviors, it’s important to provide your business and customers with as much protection as possible from potential gift card fraud.  

 

1 National Retail Federation, 2020.

2 Research and Markets, “Gift Card Market By Product,” 2020.

3 Mimecast, “Business Email Compromise (BEC) Scams That Involve Gift Cards Usually Aren’t Very Sophisticated – But Employees Often Still Fall For Them,” 2020. 

 


Joe Lamar | Product Management Executive | Merchant Services at Bank of America