How Retailers Can Prevent Gift Card Fraud And Protect Customers Post-Holiday

The Growing Popularity of Gift Cards—and the Risk Of Fraud

While popular and readily available year-round, gift card purchases surge during the holidays as shoppers seek a convenient way to let the recipient choose what’s just right for them. In fact, gift cards have become so easy and popular—with both givers and receivers—more than two-thirds of Americans were likely to purchase gift cards this holiday season, an increase over the previous year.
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The ubiquitous availability of gift cards, the diversity of selection, and the simplicity of gifting and redeeming have driven massive growth among consumers. In the U.S. alone, the gift card industry is expected to increase from $199.9 billion in 2023 to $267.3 billion by 2028.

That’s great news for retailers and shoppers who love the convenience and ease of gift cards.

Unfortunately, it’s also great news for fraudsters who see an opportunity to make quick money with little chance of getting caught. And although individual gift card amounts may be small, the scale of gift card fraud adds up. In 2023, gift card-related fraud made up $217 million of the record-high $10 billion in money lost from scams nationwide.

Gift card fraud happens in several ways, but almost always involves stolen goods that the fraudster uses to convert a purchase transaction back to cash.

How Do Criminals Go About Exploiting and Manipulating Gift Cards?

Gift Card Tampering

In this scenario, gift cards are shoplifted from racks at popular retailers and sent to a location where scammers alter the barcode and PIN. Cards then are repackaged and placed back on store racks for shoppers to purchase. When shoppers pay for and activate the compromised gift cards, the scammers gain access to the money on the card. By the time the consumer goes to redeem the card, there are no funds left.

Purchasing Gift Cards with Stolen Credit Card

Using credit cards obtained with stolen identities, fraudsters purchase gift cards and then exhaust their value or resell them on secondary marketplaces. This has a significant financial impact on the retailer. In addition to the cost of the chargeback, retailers also are out the amount of the gift card, compounding the financial loss.

Receipt-less Return Fraud

Once criminals make fraudulent purchases using stolen credit cards, they then return the items without a receipt and request that the refund value be placed on a gift card, not the credit card originally used to make the purchase. Oftentimes, retailers will utilize a DMV-issued ID for return tracking—implementing an annual “max receipt-less return limit”. However, simply scanning an ID with OCR capabilities doesn’t tell the retailer if the ID is authentic, leaving them issuing refunds to fraudsters with fake IDs. Retailers not only suffer the loss associated with the first purchase made on the stolen credit card, but they also lose the value placed onto the gift card, which then can be resold on secondary marketplaces. You can learn more about receipt-less return fraud here.

How to Prevent Gift Card Fraud

Gift card fraud is just one piece of the larger retail fraud puzzle. As fraudsters continue to exploit gaps in security, retailers must stay vigilant and adopt advanced solutions to protect their businesses and customers. From tampered gift cards to fraudulent refunds, preventing these schemes requires a proactive approach—with tools like real-time ID verification and robust fraud detection systems.

·    At checkout, this means an accurate, simple solution with limited friction should be used to verifiy that the buyer is using a real ID and is the person presenting the ID.
·    At the return desk, this same system should be used to ensure that the ID not only matches the person presenting it, but that it is an actual real ID and not a fake or manipulated document.

To dive deeper into another growing challenge retailers face, check out our blog on Breaking Down Return Fraud And How to Prevent It.

With Intellicheck you can prove identity confidently, in real-time, with a service that leverages our proprietary database to analyze authoritative data in ID barcodes—stopping fraudsters and safeguarding customers without time-consuming and error-prone templating or manual review. With more than two decades of expertise in identity verification, Intellicheck provides tools designed to improve customer experiences while addressing the evolving challenges of fraud prevention.