How many gift cards do you have just lying around? Is your wallet packed with old gift cards that are worth around $.43 or $2.17? Typically, we give little thought to gift cards, especially when their values are comparatively small. However, did you know that shoppers spent over $30 billion buying just gift cards in 2014?! Although it’s hard to see the impact of the $5 Starbucks gift cards that Grandma hands out like candy, when you break down the components of the gift card system, it’s easy to understand how every small card adds up to a major industry.
Let’s first take a moment to understand why gift cards are so popular and widely available. The reasons are two-fold:
- Gift cards are an easy go-to gift
- They help retailers to guarantee business
Gift cards not only offer a convenient, thoughtful, and flexible gift option, but allow merchants to essentially secure some portion of a future purchase. Consider this: merchants that sell gift cards can expect that either the recipient will complete a future, larger transaction (how often do you use the exact amount of a gift card), or the gift card will remain unused, securing the retailer the profit of the gift card with zero cost outside of the transaction or physical card fees.
The demand for these pre-paid cards makes them advantageous for most businesses, but criminals can very easily re-sell or exploit them. Here are some ways that gift cards can hurt a business:
In-Store Gift Card Information Theft
A tactic that criminals may employ is physically visiting brick-and-mortar stores to copy or scan gift card information from not-yet-activated cards. They can then simply wait for money to appear on those cards by using software that constantly checks online for the cards’ activation. When a card is purchased and value added, these fraudsters will be alerted. According to the BBC, the average time between gift card purchase and redemption is two months, which is plenty of time for an information thief to acquire and spend a balance online before anyone notices.
Stolen Credit Card Purchases, a.k.a “Fraud-ception”
Another common type of gift card fraud involves criminals who buy gift cards with stolen credit card numbers (which is incidentally credit card fraud). When siphoning funds through the purchase of gift cards, credit card thieves can extract spendable cash as gift cards, rather than dealing with the bulk and reshipping necessary for physical goods. Purchasing gift cards allows these fraudsters to maximize the funds drained before the credit cards are canceled.
Second-Hand Gift Card Sellers
Sometimes, people receive gift cards for merchants that they just don’t care about — the bane of every gift-giving situation. Rather than re-gifting, such consumers might decide to sell these cards online. Upon seeing such a listing, a criminal would contact the seller, pretend to be interested in buying the card, and ask to verify the balance on the card. The seller verifies the balance through the store by entering the gift card information online. Meanwhile, by means of special software that can track the online store’s gift card balance checker, a fraudster can steal the card number and PIN. Effortlessly, they can tell the seller that they are no longer interested while removing or using the funds associated with the for-sale gift card number.
Employee Scams
When working behind the counter, committing gift card fraud is almost too easy. All it takes is a busy afternoon at the store, a distraction, or simply a preoccupied customer. While ringing up a gift card purchase, an unscrupulous employee can switch the customer’s gift card number or balance with that of an empty gift card. Customers rarely notice the switch, and by the time they realize that their gift card has a balance of $0, it’s too late. With this simple bait-and-switch, dishonest employees may acquire many loaded gift cards they can use online anonymously.
Countless online businesses incorporate gift card sales into their business strategies. Physical vigilance and intense online scrutiny are essential in maintaining a secure environment for these merchants. Sometimes, however, being careful isn’t enough and a little help from big data can save these retailers time, money, and headache. At Sift Science, our mission is to identify and eliminate all forms of fraud, including gift card fraud.
Have you experienced gift card fraud, either as a merchant or as a shopper? What tactics work for you to stop gift card thieves fast?
