The holidays are an ideal time to recognize top performers, clients or vendors with gift cards. They are also an ideal time for organizations to inadvertently reward hackers, scammers and fraudsters who exploit lax security around corporate gift-card programs. Not only can individual recipients lose their rewards, but fraud can also completely undermine an organization's incentive program goals.
"When recipients have a negative experience with gift cards, the positive outcome businesses had hoped for can be marred and leave both sides frustrated," says Theresa McEndree, vice president of marketing at Blackhawk Network, a branded gift card company that works with organizations to incorporate gift cards into their incentive programs. She emphasizes that "fraud is a very small part of what happens in the gift-card market," but she points out that when it does occur, businesses lose more than the face value of the card -- by rewarding recipients twice, essentially, to salvage the positive experience, and by suffering a hit to the reputation of the program.
Protecting Recipients from Gift Card Fraud
Gift card fraud costs individuals and companies huge amounts of money. The Federal Trade Commission received reports of losses adding up to $1.48 billion in gift card fraud in 2018 — a 38 percent increase over the previous year. Scammers are getting more creative, introducing new ways to convince individuals to part with the value of their gift cards or draining them before they can be redeemed. At the same time, gift cards are becoming more popular as a gift of choice.
"For the 13th year in a row, gift cards remain the most popular items on shoppers' wish lists," says Erin Wood, board chair of the Retail Gift Card Association, which represents members of the closed-loop gift card (associated with a single retailer) industry. "Unfortunately, like all payment tools, criminals have found ways to abuse gift cards."
Wood points to a number of scams involving gift cards that people should be aware of. These include:
- Account-takeover fraud: With this type of fraud, scammers gain access to gift card data by hacking into gift-card recipients' online accounts, and proceed to drain or transfer the balance.
- Victim-assisted fraud: In this instance, the fraudster pretends to be someone like a grandchild, the IRS or a tech-support representative, and requests payment in the form of gift cards.
- Social-engineered/internal fraud: In this fraud scheme, scammers convince retail employees to activate stolen gift cards, giving them data such as gift card numbers and/or PINs, or providing them with access to the merchant's registers by claiming to be members of the company's IT department.
- Product tampering (including "skimming"): This type of fraud takes place when criminals steal or alter the gift card's number and/or PIN in stores.
- Fake-fraud claims: Fraudsters claim to be victims of gift-card fraud and request compensation from retailers or gift-card exchanges in this scamming scenario.
- Upstream-system-access fraud: In this fraud scheme, scammers hack into gift card processing systems, distribution centers and stock locations that create and/or store physical and digital card information.
"As technology has advanced, fraudsters have become more creative in the ways they attempt to compromise gift cards," says Skeet Rolling, chief operating officer at InComm, which provides payment technology solutions to businesses and corporations.
He cites the example of fraudsters using magnetic stripe readers to scan gift cards on store shelves and clone them so that they can steal the funds once a customer activates the card at the register. Industry organizations have gone to great efforts to help prevent just these kind of schemes. For example, InComm works with merchants to train their personnel to notice and report suspicious in-store activity.
"We pride ourselves on having one of the prepaid industry's only dedicated fraud departments, which provides 24/7 fraud monitoring and assists cardholders with navigating potential instances of fraud," says Rolling. "Additionally, InComm has a fraud lab that works on product innovations, such as new types of gift-card packaging, that will reduce the likelihood of fraud occurring in the future."
Full info about InComm's fraud-prevention efforts can be found here.
To help industry members appreciate the dangers around fraud and how they can overcome them, the RGCA has released a consumer education video discussing common scams and how to avoid them. They also released a list of tips for shoppers and gift-card recipients to review before purchasing gift cards. Among the tips:
- Avoid any unsolicited demands for payment by gift card (online or phone).
- To report IRS impersonation scams to the Treasury Inspector General for Tax Administration, visit their website or call (800) 366-4484.
- If you think you've been scammed, contact the FTC online or by phone at (877) FTC-HELP.
- Check physical gift cards bought from a retailer or gift-card mall for package tampering before purchasing. If the scratch-off material covering the card's PIN is uncovered, pick another card and show the questionable card to a store associate.
- Keep physical cards secure in a wallet, purse or other secure place. If the card has a PIN covered by scratch-off material, leave the scratch-off material in place until the PIN is required.
- Keep digital or e-gift cards secured in an account or mobile wallet that is password-protected with a strong password and multifactor authentication.
- Never share the account number or PIN on the back of gift cards with an unsolicited source.
When ordering cards in bulk or for a large-scale incentive program, many of these risks can be avoided by working directly with gift-card merchants or distributors of multiple brands and prepaid cards, which generally have security programs of their own in place. Most merchant partners and distribution partners of the Incentive Marketing Association's Incentive Gift Card Council offer additional security protections to their incentive clients.
"When recipients have a negative experience with gift cards, the positive outcome businesses had hoped for can be marred and leave both sides frustrated."
Theresa McEndree, Blackhawk Network
For example, Blackhawk Network collaborates with other gift-card industry stakeholders, including the RGCA, to provide buyers with an extensive list of tips to ensure they have safe, positive experiences with gift cards. Blackhawk also closely collaborates with state, local and federal law enforcement including the FBI and U.S. Treasury Inspector General for Tax Administration, as well as loss prevention departments to ensure that its distribution network is provided with the latest information in preventing consumer fraud.
"We also have staff dedicated to proactively searching for scams and working with internet hosting companies, law enforcement and other third parties to stop or mitigate crime," says McEndree. "Blackhawk has created predictive fraud-detection solutions that other companies can mimic. These include techniques to identify and thwart online account takeover as digital gift cards have risen in popularity."