Prepaid gift cards from eCommerce merchants have long been a convenient option for consumers and businesses alike. They offer flexibility for the giver and freedom of choice for the recipient. However, beneath this convenience lies a rapidly growing threat—gift card fraud. This type of fraud not only disrupts the profitability of businesses but also leaves consumers vulnerable to being the victim of a scam.
In this article, we will explore what gift card fraud is, how it happens, and the steps your business can take to prevent it. Our focus is on providing practical solutions to protect your gift cards, maintain customer trust, and ensure a seamless shopping experience. By understanding the tactics behind gift card scams and implementing strong security measures, businesses can protect themselves and their customers.
What is gift card fraud?
Gift card fraud refers to the unauthorized use or manipulation of gift cards for illegal gain. With the rise of eCommerce, gift card fraud has become more sophisticated. Cybercriminals have learned to exploit vulnerabilities in gift card systems, such as the “check balance” utility, making them another set of control points in shopping cart software that businesses need to monitor.
This makes gift cards attractive targets, as they can convert value into cash or goods remotely without revealing the gift card fraudster’s identity.
Gift card fraudsters often exploit vulnerabilities in gift card systems, such as weak security measures or lack of monitoring, to carry out their schemes. This makes it crucial for businesses to understand how gift card scams work, including common frauds like phishing, skimming, or hacking, and the potential impact it can have on their operations and customer trust. By being aware and implementing strong countermeasures, businesses can better protect themselves and their customers from such fraudulent activities.
How Do Gift Card scams work?
Fraudsters employ various tactics to exploit gift card systems. One common method is using eCommerce bots to test numerous combinations of gift card numbers and PINs. These bots can run thousands of attempts per minute, making it difficult for businesses to detect fraudulent activities.
Another method involves social engineering tactics, where scammers trick employees or customers into revealing gift card numbers. This can happen through phishing emails, fake customer service calls, or even in-person interactions.
Additionally, some fraudsters tamper with physical gift cards in stores, recording card numbers and activation codes. Once the card is purchased and activated, it can quickly drain its value before the legitimate buyer gets a chance to use it.
There are several gift card fraud schemes in which scamming can occur, including:
- PIN brute-forcing: Cybercriminals often employ sophisticated hacking techniques to either guess or systematically generate PIN numbers for activated gift cards. These techniques may involve algorithms that exploit weak security measures or databases of previously stolen information. Once they successfully obtain the PIN, they gain unauthorized access, allowing them to make purchases or completely drain the card’s value. This type of fraud can often go unnoticed until the rightful owner attempts to use the card, only to find its balance depleted.
- Balance checking: As mentioned earlier, fraudsters exploit vulnerabilities in gift card systems that allow them to check the balance of a gift card without having to use it for a purchase. They often employ automated bots or scripts to scan numerous cards in rapid succession, identifying those with substantial balances. This allows them to find active and loaded cards that they can target for fraudulent activities, such as stealing funds or reselling card details on the black market.
- Online purchase using a stolen credit card: Another common scam is using a stolen credit card to purchase gift cards online. This allows fraudsters to quickly convert the stolen credit card information into tangible goods, such as gift cards, which can then be used or resold for cash. To prevent this type of fraud, businesses must have robust identity verification protocols in place when selling gift cards online.
- Gift card swapping: With this method, fraudsters typically enter a retail store where they locate an inactive or low-value gift card on display. They then discreetly swap it with a higher value one, often choosing cards that appear identical to avoid detection. After the swap, they proceed to the customer service desk, claiming they want to return the card for a refund due to a change of mind or an error in purchase. Once the return is processed, they effectively receive a refund for the higher value card, which is now linked to the funds of the swapped card. The fraudsters then use the stolen funds on the now-active high-value gift card, completing the scam and leaving the store with illicit gains.Physical theft: Gift cards can be physically stolen from stores, often when they are displayed on open racks or shelves, making them easy targets for shoplifters. Additionally, they can be intercepted during shipping, either through tampering with the delivery process or through theft at various stages of transit. These vulnerabilities highlight the importance of secure handling and distribution practices for gift cards.
- Card cloning and tampering: Fraudsters typically copy the magnetic strip information from a legitimate gift card by using a skimming device, allowing them to capture all the necessary data. They then use this information to create a fraudulent duplicate card, which can be used to make unauthorized purchases or drain the card’s balance without the original owner’s knowledge. This form of theft is becoming increasingly common, highlighting the importance of monitoring gift card balances and purchases.
- Using a trusted insider: By using somebody inside of a store, such as a dishonest employee or an accomplice posing as a legitimate customer, fraudsters can manipulate the gift card system from within. This could include stealing activated cards from inventory or using fraudulent methods to activate high-value cards without purchasing them. Businesses must have strict security protocols in place to prevent these types of insider threats.
- Social engineering scams: Scammers often employ deceitful tactics to trick victims into purchasing gift cards, then convince them to share the card details over the phone or online. They typically claim that the gift cards are needed for the payment of a debt, taxes, or other fabricated reasons. These scammers usually create a sense of urgency or fear to manipulate their targets, leaving victims feeling pressured to act quickly without questioning the legitimacy of the request. This fraudulent practice continues to exploit unsuspecting individuals, highlighting the importance of staying vigilant and informed.
By employing these tactics, fraudsters compromise both digital and physical gift cards, making fraud prevention a critical priority for businesses.
Examples of Gift Card Fraud
While the threat of gift card fraud has been around as long as eCommerce has, there are several noteworthy incidents that illustrate just how pervasive the problem is:
E-commerce Platform Breach
Hackers exploited vulnerabilities in a major e-commerce platform’s API to gain unauthorized access to customer accounts and scrape gift card numbers. They used automated bots to cycle through potential numbers, leading to widespread unauthorized usage of legitimate customer cards.
Fake Gift Card Websites
Fraudsters created websites that appeared to be legitimate gift card retailers; however, they were designed to capture users’ personal information and payment details when attempting to purchase cards. Victims believed they were buying real gift cards, but instead, they handed over sensitive data.
Phishing Emails with Links
Scammers sent out phishing emails disguised as reputable brands offering exceptional discounts on gift cards. The emails contained links that directed recipients to fake websites where their information was collected and used to drain money from their bank accounts.
API Misuse by Third-Party App
A popular third-party application that tracked multiple gift card balances improperly stored user credentials and allowed unauthorized access to these accounts through an insecure API. This breach led to attackers intercepting gift card codes and making illicit purchases.
Online Marketplace Exploitation
On online marketplaces, sellers offered discounted gift cards obtained through deception or hacking. Buyers, unaware of the fraudulent origins, purchased these cards, only to find them deactivated after purchase as systems eventually flagged these cards due to their suspicious origins.
Such cases emphasize the importance of robust fraud prevention measures and heightened awareness of evolving threats.
How gift card fraud impacts your business
Monetary loss from gift card fraud is multifaceted, impacting both consumers and businesses. Consumers may find their gift card balances depleted without their knowledge, while businesses face challenges in tracking and preventing fraudulent transactions. Here are some of the impacts that a business might see:
The most obvious impact is the direct costs of what the fraudsters are able to steal through gift card fraud. This type of fraud can result in significant financial losses for businesses, as fraudsters often exploit vulnerabilities to drain funds from gift cards.
Companies often face chargebacks from credit card companies when fraudulent transactions are disputed. These chargebacks are not merely refunds; they carry additional fees and can accumulate quickly, exacerbating financial strain on a business.
The damage also affects the company’s reputation. When customers lose funds through fraudulent gift cards, it erodes the trust they have in your brand. This can tarnish the company’s image, leading to long-term harm to customer relationships and loyalty, ultimately impacting sales. Moreover, as fraud targeting customers escalates, businesses are compelled to invest more in fraud detection and prevention. This includes implementing advanced security systems and conducting thorough investigations, which are both costly and resource-intensive.
Failure to efficiently manage this predicament may lead to considerable challenges, including fines and fees from outsourced gift card systems and regulatory bodies. Moreover, not only do these fines impact the immediate financial health of the business, but they can also harm long-term profitability and reputation, potentially leading to a loss of customer trust and loyalty.
Through these combined impacts, gift card fraud proves to be a critical challenge that requires vigilant attention and a strategy to mitigate.
Preventing gift card fraud
Prevention is the best defense against gift card fraud. By taking proactive measures, businesses can safeguard their systems and build trust with customers. Here are key strategies to consider:
Implement an advanced bot management solution
Implement an advanced bot management solution to safeguard your website from automated attacks. These attacks can exploit vulnerabilities, such as those found in gift card systems, potentially leading to significant financial and data losses. By using an advanced bot management tool, you can monitor traffic patterns, detect suspicious activities, and ensure the security and integrity of your online operations.
Implement multi-factor authentication for account logins and gift card code redemptions
Implement multi-factor authentication for account logins and gift card code redemptions to enhance security and prevent unauthorized access. This additional layer of protection requires users to provide multiple forms of verification, such as a password and a code sent to their mobile device, ensuring that only authorized individuals can access accounts or redeem gift cards.
Regularly audit your systems and conduct comprehensive vulnerability assessments
Regularly audit your systems and conduct comprehensive vulnerability assessments to identify potential weaknesses. This involves examining hardware, software, and network configurations to ensure they are secure. Additionally, stay updated on the latest security threats and employ best practices to mitigate risks, ensuring your systems are robust against potential attacks.
Train employees in cybersecurity best practices
Train employees in cybersecurity best practices by conducting regular workshops and training sessions. These should cover important topics such as recognizing phishing attempts, safeguarding sensitive data, implementing strong password policies, and social engineering tactics. Additionally, it provides resources and support to help employees stay informed about the latest cybersecurity threats and how to effectively protect the organization’s digital assets, including sensitive gift card data.
Regularly audit gift card systems
Regularly audit gift card systems to identify vulnerabilities that could lead to unauthorized access or misuse. This process involves a thorough examination of the system’s security protocols, transaction records, and user access controls. Ensuring compliance with industry security standards not only protects the integrity of the gift card system but also safeguards customer trust and financial assets.
Protect gift cards and your customers
Gift card fraud is a significant threat to businesses, but it can be mitigated with the right strategies, processes, and technology. By understanding how gift card scams work and how fraud evolves over time and implementing strong bot countermeasures, businesses can protect themselves and their customers.
Maintaining profitability in the face of gift card fraud requires businesses to invest in advanced fraud detection technologies that can identify suspicious patterns in real-time. Additionally, streamlining the claims process for legitimate consumers helps maintain customer satisfaction and brand loyalty, further supporting financial stability.
How Vercara can help
Vercara’s UltraAPI product suite offers a comprehensive set of solutions specifically designed to safeguard web applications and APIs. It effectively protects against gift card fraud, as well as other sophisticated attacks. With innovative technology and strong anti-bot countermeasures, UltraAPI ensures that your digital assets are secure and resilient against evolving cyber threats. It consists of three components:
UltraAPI Bot Manager is an advanced inline solution designed to protect APIs from malicious activities. It acts as a shield in front of web applications and APIs, effectively detecting and blocking diverse types of attacks. This includes stopping automated, unwanted bots that attempt to engage in fraudulent activities such as gift card fraud. This powerful tool ensures your APIs remain secure and free from disruptions.
UltraAPI Comply is a sophisticated solution positioned in front of API servers. It leverages machine learning techniques to meticulously detect API schemas, data types, and security controls. This capability helps identify security and compliance vulnerabilities, highlighting potential risks to provide comprehensive protection and assurance of regulatory compliance.
UltraAPI Discover offers a unique perspective, scanning APIs across the Internet as if through the eyes of an attacker. This thorough examination helps to identify API endpoints, schema definitions, and the security controls designed to protect them. By simulating potential attack scenarios, it provides invaluable insights into strengthening your API security posture.
For more detailed information or to ask any questions about these solutions, please feel free to contact us. Our team is ready to assist you with any inquiries you may have.
