Merchants: Here’s What You Should Know About Gift Card Fraud
Gift card fraud can be inconvenient and even frustrating for consumers; however, merchants are the true victims of fraudsters as excessive chargebacks can become a huge financial burden. With the increase of card-not-present transactions since the onset of the pandemic, gift card fraud has also become more prevalent. Hackers have unfortunately seized the opportunity of these perfect conditions, forcing both consumers and merchants to become more vigilant to fraud.
So, how can merchants reduce their risk of falling victim to gift card fraud? We believe that education is an important start—for both you and your customers. By learning how fraudsters target businesses and their customers, you can avoid risky situations (and save your business a lot of time, money, and stress).
Consider the following key information to successfully avoid becoming involved in a gift card fraud scam.
The Many Faces of Gift Card Fraud
Gift cards are especially appealing to fraudsters because they are not bound to individual identities and are not protected by the same strict regulations as debit and credit transactions. This makes it easy for fraudsters to steal the value of a gift card and convert it into goods or back into cash value before any fraud is ever detected. In fact, by the time the original consumer notices a problem, i.e., the value of their gift card has been drained, they report the loss and the merchant is then slammed with a chargeback (or many).
Card fraud is often difficult to detect and prevent because there are so many different methods of fraud to be vigilant of as a merchant. A few instances of gift card fraud include the following:
- Refund Fraud—A fraudster uses stolen credit card information to make a purchase and then requests a refund via gift card; this rewards the individual with the stolen money in a form that is now untraceable.
- Number Theft—Hacking methods are used to extract gift card numbers and activation codes from the company database.
- Account Takeover—Fraudsters hack into customers’ online account and use stored payment information to purchase gift cards and spend quickly.
- Physical Card Tampering—Fraudsters copy gift card numbers and barcodes from the in-store display and then wait for the cards to be purchased and activated before draining the value of the card.
Educate Your Customers, Protect Your Business
As a merchant, one of the best ways to protect your business from gift card fraud chargebacks is to educate your customers on how to protect their card information. It might sound like quite an undertaking, however, gift card fraud is often very obvious in hindsight and can be avoided using common sense and simple advice.
The FDIC has issued the following advice to consumers to prevent gift card fraud:
- Inspect gift cards prior to purchase to ensure that no activation or pin codes have been scratched off.
- Read the terms and conditions of your gift card including fees and expiration dates.
- Immediately register your gift card, protecting you in the event it is lost or stolen.
- Avoid buying gift cards from unknown third parties or websites.
It is also beneficial to remind your customers that under no circumstance will a business or government require you to make a payment via telephone using a gift card. This has become an increasingly popular way to scam customers into buying gift cards and releasing the card information to an unknown third party over the phone—easily avoided through a little education!
Proactive Measures for Merchants
The main takeaway: you can take proactive measures to protect your business from chargebacks. It is worth the time and effort to strengthen your internal security controls to prevent hackers from gaining logical access to critical information. Regular third-party security audits are key to staying abreast with proper safety measures.
Don’t Be the Next Victim of Gift Card Fraud
Contact us today to schedule a consultation and discover our gift card solutions for your business!
