Gift card fraud: Put an end to these 8 scams

With the good comes the bad. It’s an idiom that perfectly describes the pros and cons of the gift card market. 

Consumers love gift cards, and buying them is on the rise. It’s no wonder. Gift cards are as good as cash. Additionally, they can be personalized for the gift recipient’s interests and preferences. They’re easy to buy, can be gifted through a physical card or digital experience, and allow the recipient to select exactly what they want. 

Unfortunately, they’re also a fraudster’s dream, topping the list of preferred payment methods by scammers since 2018. Riskified analysis shows that gift card segments are significantly riskier compared to the other segments in all industries. While they account for a small percentage of good transactions, their “fraudularity share” is up to 7x higher.

This makes gift card fraud prevention imperative for merchants. 

What’s gift card fraud?

Gift card fraud is any type of illegitimate activity that involves gift cards, whether as a product or a payment method. It can manifest in several ways:

• Unknowingly buying stolen gift cards offered by resellers posing as legitimate merchants.
• Buying an “empty” gift card that has already been activated by fraudsters who obtained the code beforehand.
• Being tricked into sending a fraudster the activation details of a gift card, which they then steal.
• Fraudsters obtain stolen gift cards and use them to buy lower-value products (such as socks), thus flying under the radar more easily.

Unfortunately, fraudsters have found many ways to scam people into paying them with gift cards. 

8 popular ways fraudsters commit gift card fraud

1. A fraudster poses as a government official, such as a tax authority or social security agent, or a utility provider like a power company. The victim is then told they have to pay an outstanding debt or a fine and given the details of which gift card they should purchase to do so. 
2. Someone posing as tech support from a big-name company like Microsoft or Apple and asking for payment only in gift cards to solve an issue the victim is supposedly having.
3. Fraudsters contact people with the promise of a prize or a special deal and ask for an upfront payment — usually in the form of a gift card — to redeem it.
4. Posing as a friend or family member during an emergency who needs a gift card ASAP for help. 
5. Some people have even reported falling for such a scam when applying for what seemed like a legitimate job interview. 
6. The romantic scammer opens up a profile on a dating site and lures people into giving them money via gift cards.
7. The check method: You’re given a check for a sum that exceeds expectations and are asked to pay back the difference via a gift card. Only the check is fake, and you will be out of the value of the card.
8. Gift card draining: a go-to gift card fraud scheme in 2023. Fraudsters use a reader to scan the physical gift card and obtain its card number. Sometimes the packaging has been opened to obtain the activation details and then closed. Once the card is purchased by an unsuspecting consumer, the fraudster redeems the loaded funds with the stolen number.

Tips to share with your customers

The best way to avoid falling victim to gift card fraud is to exercise caution and remember that if something looks too good to be true, it probably is. Share these gift card fraud prevention strategies with your customers to help stop bad actors.

• Buy only from well-known and reputable sellers.
• Government officials and service providers will never ask for payment in gift cards.
• When buying physical gift cards, inspect the packaging and protective stickers for any sign of tampering.
• “Check your balance” websites are often fronts set up by scammers to steal the gift card’s content. Be wary of those who ask for the PIN or security code.
• If contacted by a friend or family member with an emergency request, check in with them first before buying and sending a card.

• Most big retailers, such as Amazon, eBay, and iTunes, have a hotline or contact address for reporting scams. 
• Contact the relevant authorities in your country. In the US, that is the Federal Trade Commission. 

The impact on merchants 

Merchants love selling gift cards as much as consumers enjoy receiving them. Gift cards increase foot traffic into retailers when consumers buy them and recipients redeem them. Recipients often spend more than the value of the gift card when redeeming, averaging nearly an additional $32 of spending, going right to the merchant’s bottom line. Gift cards also return a healthy profit margin.

With the aforementioned good comes the bad, however. 

Gift cards are considered a higher-risk product category, four times riskier than selling physical goods, according to Riskified’s data, with fraudsters purchasing cards with stolen funds that will then result in a chargeback. Merchants are responsible for these chargebacks and fees, causing revenue loss. Receive too many of these, and you can breach dispute thresholds with card issuers.

Not only that, but your scammed customers may stop trusting your brand and stop shopping at your stores altogether, even though the fraud may not have been your fault.

Red flags: Identifying the warning signs

The tell-tale signs that fraudsters are at work in your gift card department, may include:

• Fast chargebacks: Riskified data shows a gift card-related chargeback happens about twice as fast as a physical goods chargeback. Unfortunately, this can hinder a merchant’s chargeback rate, which issuers measure to determine the standing of a merchant account.

• Watch volumes: It seems there’s a sweet spot for fraud-prone gift card purchases, according to Riskified data. Fraudsters are more likely to purchase between 11 to 50 gift cards at a time.

• Package tampering: In many cases, fraudsters come into your store and tamper with the packaging to steal the gift card inside. Check your display for any blatant package defects. Then, run your finger over the back of the gift card to see if you notice any package inconsistencies that may not be visible to the eye. 

• Review your gift card fraud rate: Seasonality should be taken into account when assessing gift card fraud rates, as both sales and fraud tend to peak around holidays. For example, Riskified’s insights team found that fraud attempts increased on average by 30% around Mother’s Day in both 2023 and 2024. It’s important to monitor your fraud ratio, but be mindful that you’re not over-declining during high-volume sales periods.

Gift card fraud prevention tips for merchants

1. Leverage gift card data: Gift cards offer more anonymity than other payment methods, which is often why they’re attractive to fraudsters. Nevertheless, gift cards could encompass distinctive data elements that you can leverage for stricter protection. For example, you might consider collecting the sender’s and recipient’s email addresses.
2. Use gift card thresholds: t’s more attractive for a fraudster to buy one $500 gift card than 20 at $25 each. Consider imposing a reasonable dollar limit on your gift cards that discourages fraudsters from bothering with your store. 
3. Enforcing a daily spending limit: Fraudsters don’t want to get caught, so they act quickly. If you can put in place rules for how much a person can spend with a gift card each day, that may help put up roadblocks a fraudster won’t want to deal with.
4. Gift card fraud prevention technology: Retailers looking to benefit from this quickly growing segment without adding vulnerabilities to their process should look for a technology solution with strong digital detection capabilities and the capacity to adapt to changing consumer behaviors in real-time. With the unfortunate pick-up of gift card fraud by sophisticated fraudsters, technology is the best line of defense, in most cases.

Gift card fraud can be controlled, but it requires diligence. Whether with an in-house team or a third-party fraud and risk technology partner, monitor this channel closely and set up intelligent gift card fraud prevention measures to impede gift card fraud at your business. 

¹All insights are fully based on RSKD internal data.

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