The prevalence of gift card fraud poses a significant threat to retailers and consumers alike. Recent data from the Federal Trade Commission (FTC) paints a stark picture, revealing that gift card scam losses totaled over $228 million last year — a staggering increase of more than $100 million from 2020.
As cybercriminals continue to exploit vulnerabilities in traditional payment methods, such as plastic gift cards, it becomes imperative for retailers to adapt, and many are turning to digital gift cards as a means of enhancing both convenience and security for their customers while ensuring their trusted brand reputations remain intact. But what sets digital gift cards apart from their traditional counterparts, and how do they help mitigate the risks associated with gift card fraud?
Traditional plastic gift cards, while popular among consumers, are susceptible to a variety of security threats, including theft, duplication loss, and unauthorized use. Not to mention the analog inconvenience of consumers having to carry physical gift cards on their person wherever they go just in case they want to use them. This past holiday season saw a surge in gift card fraud stories, underscoring the urgency for retailers to address these vulnerabilities, especially before the next peak shopping moment.
The trend of “gift card draining” happens when fraudsters can gain access to physical copies of the gift cards in retail stores. These criminals tamper with gift cards, using a reader to scan an unpurchased card’s number and record it. When that card is actually purchased and activated, they redeem the loaded funds with the stolen number. Some have devices that allow them to replace the silver strip that is scratched off to redeem a card, while others choose cards that come in envelopes so you cannot see they’ve been scratched until it’s too late.
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Because of these issues, digital gift cards offer a compelling alternative solution to combat the growing threat of gift card fraud and draining. By leveraging advanced encryption technologies and multi-factor authentication protocols, digital gift cards can provide a robust barrier against fraudulent activities.
These security measures help prevent unauthorized access to gift card funds and ensure that only the intended recipient can redeem the card. Plus, with no physical inventory to manage, retailers also can expect to see reductions in overhead costs, including storage and shipping, and a potential uplift in sales spurred by the convenience of digital delivery that is instant and accessible.
With the seamless integration of digital gift cards with secure online platforms, retailers can monitor gift card activity in real time, flagging any unusual behavior and taking immediate action to protect both their assets and their customers’ funds. This proactive approach to security helps safeguard against potential losses and preserves consumer trust in the brand.
Likewise for the consumer, digital gift cards can be stored in their email or mobile device wallet, offering flexibility, convenience and mitigating potential loss or theft. That’s a win-win for consumers and retailers alike.
As the threat landscape and fraud attacks continue to evolve, it is essential for retailers and digital gift card providers to work together in the fight against gift card fraud. By implementing robust security measures and staying vigilant against emerging threats or scams, we can create a safer and more secure environment for both retailers and consumers and protect against fraud to preserve trust.
Julie Gu is the VP of Consumer and Marketing, North America/Global Acquisition Marketing for Prezzee. With nearly two decades of experience building brands, driving audience engagement and increasing business revenue, Gu manages the U.S. business across all marketing disciplines and channels. She has held positions at several noteworthy companies including Hagerty, Fortune Magazine, Time Magazine, ASMALLWORLD and Condé Nast. In addition, she has developed an influential network of partners across industries from Exxon Mobil and Porsche to JP Morgan Chase and Google. Gu holds a Bachelor of Science in Communications from New York University and is fluent in Mandarin.
