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Don’t Get Scammed by a Grifter: How to Avoid and Manage Gift Card Fraud

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Fraud and gift cards go hand in hand. Since their inception in 1930, many have been caught up in scams or fraud, and according to an AARP survey, around one in 10 people will fall victim to gift card scams and fraud. Retailers around the world rely heavily on gift card purchases. In fact, the number of digital gift cards U.S. retailers sold in November 2020 increased 25% year-over-year, with an additional increase of 106.1% year-over-year in December 2020. 

Cybercriminals are always looking to target new victims, convincing them that they need to purchase a gift card, sometimes called an electronic voucher, to pay bills, taxes or other financial obligations. With the increase of mobile wallets and more consumers hopping on the e-gift card bandwagon, merchants must practice a heightened sense of vigilance around issues of gift card fraud.

Here’s some insight as to how merchants and consumers can avoid scams and gift card fraud: 

Consumer vs. Merchant

This type of fraud not only hurts consumers, it harms merchants as well. According to Digital Commerce 360, in 2020 consumers spent $861.12 billion online with U.S. merchants alone, which is an increase of 44% year-over-year and is triple the 15.1% growth we saw in 2019. In addition, approximately 50% of merchants have declined orders related to gift cards due to the surge of fraud, leaving both players at a loss.

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These types of gift card schemes consist of cybercriminals who use varying tactics to obtain and redeem gift cards that you (or your business) paid for. Gaining access to consumer accounts has increased, allowing fraudsters to purchase gifts on their dollar.

These scams don’t typically require large payments. However, with the rise of digital payments, merchants are beginning to notice a steady increase in fraudulent losses that are compounding over time. In fact, just this past fall, the U.S. Department of Justice announced the indictment of four fraudsters for participating in a gift card scheme.

Financial Impact

To measure the impact of these gift card schemes, let’s take a closer look at real-world scenarios and best practices. Right now, brick-and-mortar retailers provide various sets of ready-to-load gift cards for a select collection of stores and restaurants, providing more access to consumers and, unfortunately, fraudsters. Gift cards allow businesses to grow, but only if they take the proper steps in fraud protection and embrace solutions to protect their business and consumers. This can be easily integrated through a custom mobile app, keeping their fraud costs low and maximizing approvals of legitimate transactions.

It’s essential that every business feels empowered to utilize a single integration that can handle both risk review and indemnification as well as credit card authorizations. Applying an API for custom apps and plugins for ecommerce-focused platforms not only provides an elevated customer checkout experience but ensures a high approval rate for high-risk products, and even zero chargeback liability for customers, by simply adjusting and deciding to make combating and monitoring gift card fraud a top priority.

Solutions-Oriented Approach

Consumers are shopping more than ever, and many businesses have adjusted online to keep up with demand. With e-gift Cards not going away anytime soon, comprehensive fraud solutions are necessary for merchants and customers to keep up with the market. Data even shows that the global market is expected to reach $2,076.51B by 2027, and that 1% to 4% of U.S. revenue is being lost due to gift card fraud.

With ransomware and other cyberattacks consistently attracting the fraud-prevention industry’s attention, it can be easy for these sorts of bad actors to fly under the radar and hurt merchants. Stolen credit cards used for e-gift card purchases allow for anonymous, universal and easily liquidated opportunities.

However, with the right tools at their disposal, merchants and retailers can stay one step ahead of these fraudsters and ensure their customers a safe and enjoyable experience for years to come.


Matt Haroldson is SVP of Strategy and Development at Vesta. He is an experienced senior business strategist with a successful record of selling and supporting hardware, software, and IoT products into Fortune 500 accounts in the mobile operator, consumer electronics (brand and retail), and virtual payments industries. He has 15+ years of experience directing national and global accounts for the mobile industry, including leading telco provider AT&T/Cingular.

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