Retailers Adopt Advanced Technology to Thwart Gift Card Fraud, Organized Retail Crime

Gift card fraud is a pervasive challenge. In 2023, gift card-related fraud comprised $217 million of the record-high $10 billion in funds lost from scams nationwide.

In 2023, gift card sales topped nearly $200 billion in the U.S., and about 50 percent of U.S. consumers said they planned to buy gift cards due to their convenience.

However, this convenience factor also plays right into the hands of scammers, allowing them to bypass traditional fraud-prevention methods such as address verification and delivery. According to a 2022 survey conducted by AARP, the American Association of Retired Persons, 34 percent of U.S. adults said they or someone they know had been targeted by scams seeking payment by gift card. Of those who were targeted, 24 percent followed through by purchasing gift cards and sharing the activation numbers with a scammer. A quarter of respondents said they’d given or received gift cards that had been drained of funds.

Gift card fraudsters use a variety of tactics.

Fraudsters exploit fraudulent returns and FTID (fake tracking ID) schemes to acquire gift card funds through various tactics. They may purchase items with stolen credit cards and then return them for store credit or gift cards. FTID tactics focus on bypassing identification checks during returns, allowing fraudsters to return stolen merchandise or exploit refund policies. They may use fake IDs, altered receipts, or rely on lax return processes to achieve their goals. Once gift cards are obtained, fraudsters can sell them at a discount or use them for personal purchases, effectively converting stolen goods or false claims into untraceable funds.

Some will drain a gift card by obtaining the barcode, CVV number, PIN number or activation code from beneath the slim cardboard packaging. They reseal the card, wait for a consumer to buy it and load it with money, and then spend the balance before the consumer can. Some merchants have sought to combat this by leaving their store-branded gift cards behind the checkout counter, handing them out after purchase.

Other fraudsters will misrepresent themselves in a variety of phishing scams to convince consumers to purchase gift cards, then provide the card details to the fraudsters to drain the cards. Scammers tell the victim which gift card to buy (and where). They might say to put money on an eBay, Google Play, Target, or Apple gift card, or direct a consumer to a specific store — such as Walmart, Target, CVS, or Walgreens. These scammers often work as part of an organized crime network of fraudsters.

Publicly Accessible Information and Data Analytics to the Rescue

With the increasing proliferation and sophistication of scammers, a growing number of retailers are leveraging publicly available information (PAI) and analytics to surface key insights for threat detection. Retailers are empowered to vastly improve the monitoring and analysis of gift card transaction patterns, identifying anomalies, and implementing proactive measures to prevent fraudulent activities before they impact retailers and customers.

Advanced artificial intelligence and analytics help identify fraudsters, particularly when they're working in tandem with others, by tracking suspicious activities and mitigating risks to help safeguard the integrity of gift card programs and fight the growing scourge of gift card fraud.

By leveraging publicly available and difficult-to-obtain data, together with analytics, brands can surface relevant threat detection insights to stay ahead of quickly evolving fraud tactics. The AI quickly seizes on evolving threat patterns to recognize current as well as shifting fraud schemes.

Retailers need this type of comprehensive approach in their efforts to battle scammers, who continue to refine their own attacks to drain gift cards and commit other types of fraud. They also need to lean into PAI and analytics, in conjunction with existing security operations and investigations, to safeguard the integrity of their gift card programs and to demonstrate their commitment to customers, reinforcing brand trust.

Jen Snell is chief marketing officer of Babel Street, a company that empowers decision advantage for identity, threat and operations intelligence by providing advanced AI, data and analytics solutions that enhance decision-making confidence.