6 Ways Brands Can Avoid Gift Card Fraud

Many brands launch gift card programs for all the right reasons: incremental sales, new customer acquisition, brand recognition, build customer loyalty, and more. Plus, consumers thrive on promotions, with 80 percent saying they plan to purchase more gift cards in 2022.

However, gift card programs do come with risks. Unfortunately, gift cards are an appealing target for criminals because they're hard to trace and are easily converted to cash. Additionally, people committing credit card fraud often buy gift cards multiple times because these transactions tend to easily pass fraud detection engines (unless cards are purchased in bulk). Some fraudsters also steal items at one store, then return those items at another location without a receipt, receiving a gift card for the amount of the “return.” Another way that fraudsters try and “game” the system is by developing programs that continually check for balances on random gift card codes, hoping to find a code that has a balance, thereby quickly using the card to make a purchase which can be easily exchanged for cash. In other rare instances, gift cards can also be stolen by store employees.

While these risks may seem overwhelming for brands, there are ways to protect your business and your customers from gift card fraud. Here are six key steps that retailers can take to avoid this fraudulent activity:

1. Build a solid captcha system for your balance checking mechanisms, whether online or via interactive voice response (IVR) systems.

Forcing a program or script to complete a captcha, or even employing velocities on the number of balance checks a single user can complete in a given amount of time to ensure the balance check is being conducted by a human or real customer, is a great way to deter fraud.

2. Require customers to show a valid ID that's checked by employees when a gift card has been created in a merchandise return credit (MRC).

This will help ensure the same person who made the return is also using the MRC in-store to acquire new goods. MRCs can also be a valuable tool to prevent selling the gift card provided for a merchandise credit from being sold to a third party for a profit. Not allowing MRCs to be balance checked in the same way gift cards can be will make it very difficult for a fraudster to sell the MRC in the same way they would sell a gift card on secondary markets. If the secondary market site is unable to verify the balance of the card, there's typically not a market for the card to be sold.

3. Ensure that thieves are unable to go into a store, scan gift card numbers (typically magnetic stripes or barcodes), and then continually check for balances on these cards until they hit a card with a balance.

This will prevent thieves from quickly using the gift card and draining the balance from the actual buyer of the card. To avoid this type of scam, make sure your gift cards are secured with PIN codes required to complete a transaction, including security seals for the code itself, which can easily be detected as being tampered with. You can also use tamper-proof packaging for your gift cards. It’s important to note that most gift card printers will provide these options to secure the codes, but there may be an added cost for the printing of the cards. However, it's well worth the added cost to protect your customers from a bad experience and your brand from financial losses resulting from the fraud.

4. Place safeguards around the sale of gift cards in-store and online with employees.

Treat your gift cards as cash and ensure that you have the proper checks and balances procedurally with employees to protect your brand from disgruntled employees who may try and activate gift cards for their own use. Oversight as simple as detailed inventory and/or management signoff on gift card sales is a good method to deter this type of fraud.

5. If you're selling gift cards digitally, make sure that you are using best-of-breed merchant processing fraud tools to reduce the chances of stolen credit cards being used to purchase your gift cards.

There are a variety of proven tools on the market that will monitor activity and leverage blacklists of stolen credit cards to prevent the purchase of your gift cards from fraudulent buyers. Tools like Forte, Riskified and Cybersource do an exceptional job of limiting these transactions to even take on the financial liability with additional fees.

6. Outsource your gift card program to a company that has the expertise and focus to manage and navigate the fraudulent gift card market.

It's very difficult for a brand, with focus on their core business, to also properly manage a gift card program, which has made outsourcing of gift card programs so popular. Partnering with a gift card management and issuance vendor can help brands not only navigate all the aspects of fraud, but also help grow programs through distribution and manage regulatory issues.

Gift cards are a great tool for brands to increase sales, loyalty and acquire new customers. To get the most return on investment on your gift card program, your brand needs to treat gift cards as cash and employ the proper safeguards to ensure financial losses don't outweigh the benefits of the program.

Dave Jones is the CEO and co-founder of TOTUS, a leading company to issue and fully manage multichannel gift card programs for brands in a range of industries.