As we discussed in a previous post, gift cards are actually a quite lucrative asset to the holiday season. However, there is a drawback to gift cards, which is that they are prone to many different types of fraud. With gift card sales going up now in time for the holiday season, it’s important to understand some of the ways that they are used fraudulently. See our list below:
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Employee gift card fraud
What it is: One of the most common types of gift card fraud actually comes from an internal threat: employees. There are a variety of ways that employees can activate gift cards without paying; for example, by processing fake refunds and putting that money onto a gift card.
How you can prevent it: Ensure that strict reconciliation processes are in place, so that you’ll know when records in your POS system don’t match your actual account balance. Additionally, provide employee loss prevention trainings, so your staff knows that you take fraud very seriously.
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Gift card skimming
What it is: This threat is mainly posed by in-store visitors, who use an electronic reader to capture card data, and then use this data to duplicate the card. Once someone purchases the original card that was still for sale in-store, the fraudster can spend money with the fake card.
How you can prevent it: Gift cards should always be kept in a place that can be observed, whether by employees or by video surveillance. Also, put scratch-off strips over card numbers, so that cards cannot be replicated.
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Returning stolen goods
What it is: Another unfortunate fraud tactic is when thieves steal store merchandise, and then return it to get a ‘free’ gift card.
How you can prevent it: Have a clear and firm return policy. Consider requiring receipts and/or identification with returns, as well as having a specific returns time frame.
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Fraudulent purchases of gift cards
What it is: This is especially relevant in the wake of data breaches that are continuing to release sensitive card data. Fraudsters will often buy gift cards with this stolen credit card info, since they can still spend money even after the credit card is frozen- which it often is.
How you can prevent it: The best thing you can do is implement measures that will prevent fraudulent purchases from going through. In-store, this means making sure that you are EMV compliant, because you will then not be held liable for fraudulent purchases. You’ll also reduce the likelihood of fraud even happening, since EMV chip cards are very hard to replicate. Another step you can take in-store is to ask for identification with credit card purchases.
To prevent fraudulent gift card purchases online, require customers to enter their credit card’s security code as well as the billing zip code- oftentimes, fraudsters don’t have this information. We also recommend adding a fraud protection software like FraudWatch to screen for signs of fraud.
For both in-store and online gift card sales, you can consider placing a price or quantity limit on gift card purchases.
Unfortunately, there is a long list of gift card fraud variations, and the few that we’ve mentioned above just scratch the surface. Hopefully, though, you have started to think about some ways that you can protect gift card sales this holiday season-and all year round.
For more information on gift card programs and fraud prevention, contact Fidelity today.
