Gift Card Fraud Prevention: How to Protect Your Business

Gift card fraud can wreak havoc on a small business. Learn what types of fraud are most common and how to protect your business from losing money.

While security on credit and debit card transactions has increased over the years, security on gift cards remains hard to implement, as they generally aren’t tied to individual identifiers like an address, a PIN, or even a name. 

Because of this, gift card fraud is prevalent and can leave you on the line for lost revenue and other problems. Knowing how to spot and prevent gift card fraud is the key to protecting your business. 

Keep reading to learn about some common fraud types and four ways to prevent them at your business. 

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What Is Gift Card Fraud?

Gift card fraud is any scam or fraudulent activity associated with buying, receiving, or redeeming gift cards. Gift cards are a frequent target of fraud because they are generally untraceable, easy to resell or exchange for goods, and available at many businesses. 

There are two main types of gift cards and fraud can happen with both. The first is merchant-specific cards, which are only good at a specific store or store chains. The other is known as an open-loop gift card, which is most notably in the form of prepaid debit cards by Mastercard and Visa that can be used at any retailer like any other debit card. 

As a merchant, it’s important to watch out for fraud from either type of gift card, as it may result in chargebacks and loss of profit. 

Different Types of Gift Card Fraud

There are a ton of different ways a gift card system can be frauded, with new methods popping up all the time. However, there are five main types of gift card fraud that can directly affect merchants, including:

  • Using stolen credit cards to purchase gift cards: This common form of fraud is when fraudsters use stolen credit cards to purchase large amounts of gift cards, often to resell online, before the card owner can shut down the card. 
  • Refund fraud: This is when scammers either steal merchandise or purchase it using stolen credit cards and then return it to your store for gift card credit. They mainly do this because gift cards are virtually untraceable, so they generally won’t be tracked to them. 
  • Card number theft: This involves scammers hacking into gift card databases to steal or create their own gift card numbers to use. The hacking can be done through phishing emails or texts, malware, or social engineering attacks.
  • Account takeover: Scammers gain access to a customer’s account, whether through hacking or accidental means (leaving an account open on a shared or public computer), and use their account to purchase gift cards. 
  • Physical tampering: For brick-and-mortar stores that sell physical gift cards, physical tampering is when people steal the gift card numbers by scratching off the security sticker and then replacing it with a new sticker, so when they are bought and activated, the fraudster has access to the funds. 

How Can I Protect My Business from Gift Card Fraud?

1.  Use Authentication for Prepaid Debit Cards 

Since prepaid debit cards are immensely popular as a gift card option, it’s important to have security measures in place that mitigate the risk of fraud. 

Pay.com helps protect merchants against fraud from these cards with 3D Secure 2.0 authentication. This helps ensure the card is with the designated cardholder, especially for card-not-present transactions. 

2. Impose Purchase and Value Limits

An easy way to help mitigate gift card fraud is by introducing purchase limits and card value limits on your gift card selections. This usually means implementing rules about the maximum number of gift cards a customer can purchase in any one transaction and limiting the amount of money they can put on the cards.

3. Track Gift Card Data

Implementing an internal tracking system that allows you to monitor gift cards with a unique identifier that can help you better spot any suspicious activity (like double purchases) and ensure gift cards have been properly activated before use.

You can also keep an eye on reseller sites. If a lot of your cards suddenly appear, it might be worth an investigation. 

4. Insist Refunds Must Be On Original Payment Method

To prevent refund fraud, you can implement a policy that all refunds are given via the original payment method, instead of getting the funds back in the form of gift cards. If a customer paid with a credit card originally, the amount needs to be returned to that card. If they paid in cash, they get cash back. 

This prevents fraudsters from purchasing merchandise with stolen credit cards and then returning them for gift cards, which are less traceable. 

What’s the Best Way for My Business to Accept Payments?

When looking to protect your business and your customers online, you want a secure way to accept payments. Pay.com is a full-service payment service provider that offers various payment methods, including credit and debit card payments. 

Pay.com has the highest level of DSS PCI compliance (level 1) and authenticates card payments using 3D Secure 2.0. Additionally, you can create a fully customized checkout page to integrate directly on your site. Pay.com makes it simple to provide customers with a safe and secure way to pay. 

Click here to create your Pay.com account now.

The Bottom Line: Protect Your Business from Gift Card Fraud

Gift card fraud can be a frustrating and costly situation for business owners like you. Because of the untraceable nature of gift cards, as well as the ability to easily resell them, they are a hot commodity for fraudsters. 

There are many different types of fraud, but understanding the main ones that may affect you can help you implement measures to mitigate the risk. This includes tracking the data, having robust authentication processes, and limiting the value and amount that can be bought at any one time. 

Preventing fraud is a key component of any good business payment strategy. Remember that Pay.com is a secure way to accept an array of payment types including credit and debit cards. From tokenization to secure customers’ data to 3D Secure 2.0 that helps prevent fraud, Pay.com is a smart option for any business. Click here to sign up now.

FAQs

What’s the best way for an ecommerce business to accept multiple payment methods?

Pay.com is the best way for an ecommerce business to accept multiple payment methods including prepaid debit gift cards, personal credit cards, and digital wallets. With 3D Secure 2.0, Pay.com has a robust authentication process to help prevent fraud on card payments and ensure your business is protected from unnecessary chargebacks.

What’s the best way to stop gift card fraud?

The best way to stop gift card fraud is to have a robust security and authentication system through your payment service provider. It also means having set policies around card limits, refunds, and more to protect in person gift card fraud.

How is gift card fraud done?

Gift card fraud is committed in a number of different ways from straight out theft of gift cards and returning stolen goods in exchange for gift cards to hacking, malware, and phishing scams online. It’s important to understand gift card fraud in order to protect your business.

Who is liable for gift card fraud?

For different gift card fraud, different parties may be liable to the loss of funds. For scams that involve using a fraudulent card, the merchants are often at a loss for those funds. For scams that involve customers buying large amounts of cards because of a gift card, they might be liable for their lost funds if they knowingly bought the cards.

Meet the author
Ashley Hague
Ashley Hague is a B2B writer based in New Zealand. Specializing in fintech, SaaS, and sustainability in business, she helps businesses achieve their goals. When not working, she can be found rock climbing or delving into a historical biography.
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