Protecting your business from gift card fraud

Published: March 22, 2011 by ofonseca

The holidays may be over, but scams targeting holiday gift cards purchased by consumers are an unwanted gift that keeps on giving.  The National Retail Federation estimates that gift cards are a $50 billion annual market, so it’s little surprise that fraudsters search for creative ways to grab a piece of the action throughout the year.  These thefts leave retailers in the difficult position of either reinstating gift card balances to victimized customers – and consequently cutting into their revenue and profitability – or sacrificing consumer confidence in the integrity of an important sales vehicle.

Addressing this violation starts with understanding the ways in which gift cards are scammed.  One of the most popular hustles involves covertly copying identification numbers from gift card displays, then stealing funds from these cards after they’ve been purchased by customers.  Scammers typically call to inquire about the balance on “their” card to determine whether cards have been activated; once this is confirmed, the thieves then purchase goods online before rightful customers have the chance to do so.  The hoax is even easier to pull off if employees are the ones cribbing card numbers and can personally monitor when the cards are activated.  Alarmingly, this is just one of numerous known scams, which run the gamut from gift card cloning to selling stolen gift cards on auction websites.

Implementing strong security around gift card programs is key to ensuring its protection for both customers and businesses.  Simple steps, such as altering gift card displays so that actual cards aren’t accessible to the public, as well as building in privacy features like pin codes, can go a long way towards deterring criminal activity.  Internally, companies must also take measures to ward off employee fraud; for example, discarding used cards and monitoring blanks to prevent employees from switching customers’ cards with old or inactive zero balance cards.

Gift cards are a growing market for businesses and should be treated as valuable sales currency, with the same risks of consumer fraud and internal misconduct that are posed by credit cards.  Developing robust safeguards, proper auditing and early detection and reporting of abuse are critical to protecting a program that is popular with customers and profitable to retailers.