With $124 billion in gift cards purchased by more than half of the adult population of the United States in 2014, it’s clear that gift cards have found their way into the shopping patterns of today’s consumer. While it’s important for retailers to recognize the value that gift cards bring to their balance sheets, it’s also important to educate them on gift card fraud, and how to help prevent it.
Gift card fraud takes a lot of forms. Here are some of the more common gift card scams, and what you can do to prevent them.
The Digital Dilemma
With the recent implementation of the EMV chip, gift card fraudsters have been turning their attention to card-not-present (CNP) online transactions using stolen credit cards to purchase virtual gift cards, also known as e-gift cards. The issue for merchants is the consumer expectation that e-gift cards be delivered instantaneously, rather than shipped out in hours or days like physical merchandise, allowing time for fraud detection. With e-gift cards, red flags like mismatched billing and shipping addresses are bypassed in favor of speed and convenience.
Prevention: If you plan to sell gift cards online, opt for physical gift cards rather than e-gift cards. Or, limit gift card purchases to the store, where a card must be present.
Magnetic Stripe Skimming
Though not seen with the naked eye, the magnetic stripes you find on the back of gift cards store data. It might surprise some to learn that this data exists even before a gift card is purchased and loaded with a dollar value. What is the data? Serial numbers corresponding with stored-value records in a point-of-sale system.
So, why would gift card fraudsters care about serial numbers? By using a skimmer to record these numbers, scammers (sometimes with the help of employees) can create gift card replicas and use software to monitor card activation online. Once they see a card is activated, they quickly use or sell the counterfeit card before the legitimate card purchaser has a chance to. Magnetic stripe skimming can occur in an unmonitored area of the store, or by removing the cards from the store, skimming the magstripe, and then returning them to the card display.
Prevention: Carefully screen employees prior to hiring, including drug testing. Store cards behind or near the point of sale, within view of employees, managers, and video monitoring. Add additional security features to your cards, such as PIN codes covered by a patterned scratch-off, and train employees to look for tampering prior to activation.
Recording Serial Numbers
Similar to magnetic stripe skimming, recording serial numbers involves photographing or writing down gift card serial numbers, rather than using a magnetic stripe skimmer. As with credit cards, these numbers are typically printed on the gift card as a back-up, should the magnetic stripe fail.
Prevention: See above.
Zero Balance Card Replacement
This slight-of-hand gift card scam involves an employee selling a gift card to a customer, then secretly switching it with a zero-balance gift card before giving it to the customer.
Prevention: Monitor video footage of the point of sale. Carefully screen employees prior to employment, including drug testing.
Some POS systems are set up to assign value to a gift card prior to the transaction being tendered. Unscrupulous employees can take advantage of this by activating a gift card then killing the power to the POS terminal prior to payment, which may prevent the transaction from being recorded.
Prevention: Work with your POS provider to ensure that cards aren’t activated until after the transaction is tendered. Monitor who was logged into the register at the time it lost power, in addition to pre-employment screening and video surveillance.
Laundering Stolen Credit Cards
One way criminals choose to convert stolen credit cards into cash is by purchasing gift cards with high dollar amounts, or making several gift card purchases of smaller dollar amounts.
Prevention: Limit the amount of money customers can place on a single gift card. Work with your credit card processor to determine ways to flag frequent gift card purchases within a small time frame utilizing the same credit card number. Also, Consider adding fraud scoring through your credit card processor.
A dishonest employee can sometimes cover his or her tracks by ringing up a gift card on one register without putting any money in the drawer, then moving to a different register to purchase additional gift cards using the first gift card. At this point, the new gift cards are bought and paid for, and the only thing left to do is to go back to the first register and void the original gift card transaction.
Prevention: Prevent employees from accessing the register when a customer or manager is not present, and don’t allow switching of registers. Monitor video surveillance, and screen employees carefully.
There is no doubt that gift cards can be a big contributor to your business success, and being aware of how to protect yourself from gift card scams will help you preserve profit. Take the time to build your employee team, and don’t be afraid to request a background check and drug screening prior to hiring. Create policies that employees must follow, such as scanning gift cards after activation to show customers their card value, and teach them to look for anomalies, such as altered scratch-offs or gift card displays with that suddenly go empty. With knowledge, vigilance, and selective hiring, you can implement a safe and successful gift card program that fuels company growth and provides customers with the convenience they’re looking for.