As gift cards have become increasingly popular, retailers have seen more and more incidents of gift card fraud. Gift card fraud may be just as prevalent as credit card fraud, though it is rarely reported in the news since personal information is rarely revealed as a result of a gift card breach. In fact, the average loss to merchants from gift card fraud is USD 72,000 (Source: CardCash.com).
Thieves and the appeal of gift card fraud
There are many reasons that fraud related to gift and other stored value cards is appealing to thieves, including:
- Low chance of being prosecuted – dollar amounts involved are usually relatively small
- Very easy to commit this type of fraud
- Quick and straightforward to convert gift card value into cash or merchandise
How fraud can occur
Gift card fraud can be internal (employees) or external (customers). You might be surprised to hear that 62% of gift card fraud is committed by employees (Source: CardCash.com). There are three primary categories of gift card fraud:
- Hacking accounts. In this type of gift card fraud, thieves hack into gift card accounts electronically to drain them of their funds. This tactic takes advantage of merchants with vulnerable payments systems and gift card programs. Another closely related scheme occurs when the fraudster uses gift cards to quickly monetize the value in other hacked accounts such as credit card rewards programs or hotel points.
- Stealing card numbers. In this type of gift card fraud, particularly brazen fraudsters steal the card numbers right off of the physical cards, in store. This tactic is especially lucrative when the retailer doesn't require a PIN when the gift card is redeemed (PINs are sometimes hidden underneath “scratch off” panels that are not visible when the gift cards are hanging on racks). The stolen card numbers are then used to generate counterfeit gift cards. This type of fraud preys on retailers who don’t keep gift cards near the checkout line, behind the counter or otherwise in constant line-of-sight of employees.
- Acquiring numbers in bulk. In this type of gift card fraud, hackers acquire gift card numbers in bulk either from the issuers, the merchant or a rewards redemption program. This is accomplished using a variety of illegal methods, including phishing, SQL injection, social engineering or accidental disclosure. Again, this fraud type takes advantage of those merchants with unsecure systems.
How to prevent gift card fraud
Given the variety of methods by which hackers commit gift card fraud, you’ll need to instate multiple angles of protection for your gift card program. Here are some best practice tips to help reduce your chances of being a victim of fraud:
- Do require a customer to enter a PIN each time a gift card is used
- Do store gift cards behind the counter or locked in a cabinet – never leave them in an unmonitored, high traffic area of your store
- Do understand when in your checkout process your gift cards are activated – employees can easily steal gift cards if the cards are activated before the transaction is actually tendered and completed
- Do keep a close watch on your gift card inventory levels and make sure the physical cards you have on the shelf matches what your records say you should have
- Do not store the gift card PINs with the gift card numbers – keep those sets of data in two separate places on your secure server
Just as credit card fraud can happen to any type of merchant, gift card fraud can impact merchants small and large and of any type. However, those merchants that are most likely to be negatively affected by gift card fraud have one thing in common: they don’t have a strong, protected gift card program. Make sure you take the time to understand and protect your gift card systems so your business does not fall victim to this increasingly popular form of card fraud.
Article written by Brendon Paquin, Vantiv Product Manager. Published by ThePaypers.com on 12/2/2016.