3 unique cases of gift card fraud and how to help protect your business

How many gift cards do you sell and process in a year? The data shows consumers love them, with Americans spending more money on gift cards than any other gift category.1 Unfortunately, criminals love them just as much.

With the gift card industry expected to experience a 10% compounded annual growth rate over the next few years, reaching $750 billion by 2026,2 one main concern for businesses is ensuring their gift card revenue does not end up in the wrong hands.

“If fraudsters are good at anything, it’s finding weakness,” says Jarrod Cohen, vice president, product manager at Bank of America Merchant Services. “As gift card programs reach new levels of maturity, businesses are having to reexamine their fraud prevention to better protect profits and their customer shopping experience.”

To help you strengthen the security of your gift card program, Bank of America Merchant Services identified three ways fraudsters are using gift cards to steal from customers and businesses — and how you can protect against them.

Case 1: Gift cards used for fraudulent cash transfers

“What makes gift cards great in the gift space is what makes them so popular with fraudsters,” says Cohen. “They’re fairly easy to transfer from person-to-person, which means the funds are virtually impossible to trace.”

The end goal of any fraud scheme is to transfer money from the intended victim 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 develop elaborate schemes for convincing their targeted victims to load funds onto gift cards and forward the card numbers.

While everyday consumers are mostly affected, business employees are increasingly targeted by some of the more sophisticated criminal organizations.3 Here are a few ways to help protect your business and your brand from this type of gift card fraud.

Phishing emails spoofing internal employees
Customer complaints and requests for refunds or appeasements
Implement internal controls to verify employee expenditures
Adopt robust customer service protocols for addressing reported fraud
Educate customers and employees on how to identify and avoid fraud

Case 2: Manipulating gift card infrastructure

While the first type of fraud targets individuals, our second case involves fraudsters directly attacking your gift card program as a whole. As criminals gain intelligence about how cards are activated and balances are checked, they can manipulate that system, often from inside your organization.

“From my experience, for larger retailers with staff attrition, fraudsters may find it easier to penetrate your organization, learn your policies and procedures and start initiating suspicious gift card-related activities. Obviously, this can affect your customers, brand reputation and ultimately your business,” says Cohen. That is, former employees may leverage insider knowledge to defraud your gift card program.

Businesses with larger footprints will need to 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.

Associates purchasing items with gift cards
Irregularly high volume of gift cards issued or redeemed by associates
Gift cards issued and redeemed in the same day and same store
Register shortages with matching gift card purchases
Non-swiped gift card redemptions (hand-keying gift card numbers)
Excessive balance inquiries
Use in-store security to monitor irregular customer and employee activity
Work with HR to strengthen hiring practices
Use gift card reporting to monitor excessive balance inquiries and inquiries on zero-balance cards

Case 3: Remotely attacking gift card balances

Some of the more insidious threats involve criminals targeting gift card balances through highly technical hacking and querying techniques. Protecting your business from these types of attacks takes extensive monitoring and controls and may require outside expertise.

Depending on your business needs, you’ll need to develop and implement fraud 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 new fraud activities in real time.

Some tactics criminals use can be as simple as stealing gift card numbers in-store before they’re activated, waiting for the cards to be activated through legitimate purchases, and then transferring the funds. Other tactics involve stealing large swathes 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 combating these advanced techniques. Here are some places to start.

Excessive number of gift card balance inquiries
Customer complaints about $0 balances
When multiple gift cards are used for a single purchase
Identify and implement thresholds to freeze gift cards with irregular activity
Enable the usage of PINs for requesting the balance of a card
Regularly review high-risk and inactive cards for attempted usage
Flag excessive balance inquiries
Monitor gift card status changes
Implement proprietary account number schemes
Adopt an algorithmic methodology for mag stripe encryption

Regardless of the risks, gift cards continue to appeal to customers, and their application as branding and customer retention tools will increase their importance 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 you and your business take advantage of these emerging trends and changing behaviors, it’s important to make sure your business and customers are as protected as possible from potential gift card fraud.

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