Learn how to recognize and combat gift card fraud by monitoring purchases, vetting your clients, and training your staff

Americans spend about $30 billion on gift cards during the holiday season. With holiday gift card sales, you can count on first-time visits from new clients and luxurious upsells for your regulars. 

Still, gift cards have a dark side. Since they’re widespread, anonymous, and nearly impossible to track, gift cards have fueled an entire subculture of scammers over the past decade or so. For business owners, gift card fraud usually looks like identity thieves who purchase gift cards using stolen credit card information, who may use these gift cards themselves or distribute them to friends. 

A credit card company will eventually get wise to the scheme, cancel the card, and chargeback the fraudulent purchases. But that could still mean hundreds or thousands of dollars in lost revenue for your business — and lost time, if you’ve already provided services for the criminal.

To combat gift card fraud, try these techniques:

Three ways to prevent gift card fraud

Monitor purchasing patterns

Scammers tend to buy and use gift cards differently than legitimate clients. If you keep a close eye on your gift card balances and purchasing patterns, you can spot fraudulent purchases early and shut them down.

Your greatest ally is management software that can produce a gift card redemption report. This will let you know who purchased a gift card, who received it, where a client intends to use it, and how much money is on it. You’ll need all of this information to pick out potential fraudsters. 

Red flags

• Gift cards for amounts that are wildly out of proportion with the services you sell. Generally speaking, legitimate clients will not buy dozens of low-value gift cards or a single gift card with thousands of dollars on it.

• Short turnaround times between purchase and use of a gift card. Normally, clients buy gift cards for other people, who may redeem them weeks or months later. If you see a client buying gift cards for themselves, then redeeming them within days, that’s a red flag; they may be acting quickly because they know that it’s only a matter of time until a credit card provider cancels the charge.

Know your clients

If fraudsters buy gift cards online, you might not know about it until after the fact. However, you can be more proactive if they shop in-person. 

Red flags

• If a client — particularly one you’ve never met before — wants to make a large gift card purchase with a credit card, ask to see their ID as well. While identity theft usually happens online, it’s still entirely possible to steal a physical credit card and use it to stock up on gift cards. Identity thieves can also simply load info from stolen cards into smartphone-based payment apps.

• If a client wants to buy a gift card for themselves, for an unusual amount of money, for immediate use, that’s reason to be wary. If you ask to see their ID and it doesn’t match the credit card, then you’ll know something is wrong.

Train your staff

You don’t need years of training or specialized skills to spot potential gift card fraud. If you know how to request reports, check IDs, and pick up on patterns, you’re already most of the way there. As such, every member of your staff should be able to help out.

• Teach your employees how to analyze gift card redemption reports. 

• Mandate that they check IDs for in-person gift card purchases. 

• Ask them to keep an eye out for unusually quick turnaround times. 

An entire staff working together can discover all sorts of information that a single worker can’t. Once your workers know what to look for, they can be your best defense against gift card fraud.

What to do if you suspect gift card fraud

If you see signs of a scam, don’t ignore them. A National Retail Federation report found that 57% of businesses surveyed had experienced gift card fraud, and that number appears to be going up.

At the same time, not every unusual transaction is automatically fraud. Clients can and do purchase their own quick-turnaround gift cards for any number of reasons. If you suspect fraud, the best thing you can do is contact the client directly, especially if they’re a repeat visitor. They may be able to explain the situation or use a different payment method. From there, you can make an informed decision.

• If you can’t confirm your client’s good intentions, your safest recourse is to cancel the gift card and refund the purchase before the client can actually use the funds. Otherwise, you could find yourself facing costly chargebacks a few months down the line.

• If you discover credible evidence of credit card fraud, you should report it to law enforcement agencies. The Federal Trade Commission offers simple online tools for reporting fraud. Your local police department can recommend resources at the county or state level.

Whatever you do, keep a level head and use your best judgment. Gift card fraud is a real threat, particularly during the holiday season. At the same time, you don’t want to alienate any of your clients by assuming the worst. Watch for suspicious patterns and have frank conversations. But above all else, continue providing the best possible service to anyone who walks through your door.