Gift Card Fraud: What It Is and How to Stop It

It’s often hard to find a good present for someone. That’s why gift cards are popular. They’re easy for the buyer and nice for the receiver. Especially in the United States, gift cards are big business. The US gift card market hit $199.9 billion in 2023 and is estimated to grow to $267.3 billion by 2028.⁽¹⁾ But this massive market isn’t just attracting genuine businesses and consumers. It’s increasingly a target for sophisticated fraudsters too.

According to the Federal Trade Commission (FTC), gift card fraud and impostor scams were the most reported fraud category in 2022. Consumers reported 48,800 cases of gift card fraud in 2022, reaching over $228 million in total losses.⁽²⁾ It’s a type of fraud becoming more and more popular, because retailers don’t protect their gift cards as well as they do their customers’ financial accounts and personal data.

What is gift card fraud?

Gift card fraud means stealing money from gift cards or tricking people into giving away their gift card numbers. Thieves find ways to spend someone’s gift card money before the real owner can use it. Once gift card money is stolen, it’s usually gone forever. There’s no way to get it back like you can with credit card fraud.

How do scammers steal gift card money?

• Tampering with physical gift cards: Think about the gift card rack at your local store. Thieves go to these racks and quietly copy down the numbers from gift cards, including the scratch-off PIN number. Then they put the cards back and wait. When someone buys and loads money on one of these cards, the thief already has all the information they need to spend the money first.

• Buying gift cards with stolen credit cards: Some scammers use stolen credit cards to buy gift cards. It’s how they turn stolen credit card numbers into cash that’s hard to trace. When someone steals a credit card, they know the owner will eventually notice and cancel it. But if they quickly buy gift cards with it first, they can spend or sell those gift cards before anyone notices.

• Hacking gift card systems: Scammers often don’t target physical gift cards. It’s too risky. They can be filmed with a smartphone or caught on CCTV. Most hide behind a computer, where they guess gift card numbers and PINs on gift card websites. They often use bots to do so, which can try thousands of combinations a minute until they find combinations that work.

• Tricking people into sharing their card numbers: Scammers call people pretending to be someone important. Maybe a local gov representative, someone from tech support, a utility company, or even a loved one in trouble. It’s a type of phishing, and it is often done over the phone or via text message. Scammers create a fake emergency and convince people they need to pay for something using gift cards. Once someone shares their gift card numbers, the money disappears instantly.

• The gift card refund trick: Some scammers buy goods with stolen credit cards, then return them asking for a gift card refund instead of returning the money to the credit card. By the time anyone notices the credit card was stolen, the gift card money is long gone.

Why is gift card fraud popular?

Cybercriminals like gift card fraud because it’s not as strictly regulated and protected as debit and credit cards are. Once the money on a gift card is gone, it’s almost impossible to get it back. There’s no way to reverse charges, protect against fraud, or figure out where the money went. Even worse, third-party gift card issuers for big businesses like Amazon, Apple, Ebay, and Best Buy often don’t have basic security measures in place.

Be careful buying gift cards off of unprotected gift card websites

Where credit card fraud can net a few thousand dollars before it’s shut down, organized gift card fraud operations can process millions in stolen cards through international networks without any real threat. Such operations will have members who steal card numbers, others that monetize them through online marketplaces, and others still that convert stolen gift cards into cryptocurrency or cash. It’s not hard to find buyers, because the criminals often sell their gift cards at a discount, like selling a $100 gift card for $80.

Gift cards are also popular because they’re a way for criminals to launder money. They buy gift cards with dirty money, then resell them through seemingly legitimate gift card exchange websites. The money comes out clean on the other end, making gift cards particularly popular for international criminal networks. In 2024, the US Homeland Security Investigations warned Americans that they had seen a sharp rise in gift card fraud coming from Chinese organized crime groups.⁽³⁾

The regulatory environment makes this all possible. In most countries, federal regulations protect consumers from credit card fraud. But gift cards exist in a regulatory gray area. Even when authorities identify gift card scams, the speed of a gift card’s conversion into cash makes recovery unlikely, especially when that conversion happens in another country.

How to Avoid Gift Card Scams

The fight against gift card fraud requires effort from both shoppers and retailers. While gift card scams keep getting more sophisticated, there are proven ways to protect yourself and your business.

For Shoppers: Smart Gift Card Habits

Never buy a physical gift card without inspecting it carefully. Look for a security seal that’s fully intact. Not just present, but completely undamaged. Many people know how to check if the PIN is exposed, but fewer realize that even tiny puncture marks or slight packaging damage could mean someone has recorded the card information.

Store the card information immediately after purchase. Take a photo of the front and back of the gift card, the receipt, the activation code, and any activation paperwork. Then register the card on the retailer’s website if possible. When Maryland state Sen. Benjamin Kramer authored a bill⁽⁴⁾ against physical gift card fraud, he said, “Think of gift cards like cash. You wouldn’t leave cash sitting around for weeks. The same goes for gift cards.”

Additionally, watch out for card swapping. Some thieves replace legitimate cards with empty ones that look similar. Buy cards from behind the counter when possible, and always check that the card number on your receipt matches the physical card before leaving the store.

For Retailers: Building a Defense System

The battle against gift card fraud requires a comprehensive strategy that protects both physical cards in stores and digital cards online. For physical gift cards, secure display cases are not optional, but essential. Cards should be kept in locked cases or behind the counter, never in easily accessible racks near store exits.

Use secure display cases to protect your customers against gift cards scams

Then there’s employee training, which should go beyond basic fraud awareness. The most successful anti-fraud programs teach employees to recognize specific behaviors, like customers buying multiple high-value cards with different credit cards or people photographing card numbers in the store. Employees should also know about common scam scripts.

Digital gift card security presents its own unique challenges. Modern point-of-sale systems should automatically flag suspicious patterns such as rapid balance checks from the same IP address or cards being used far from their purchase location. Velocity limits on digital purchases are a simple and effective measure that helps prevent bulk buying with stolen credit cards.

Additionally, some strategic friction for digital gift cards can help prevent fraud. For example, a gift card company may want to ask shoppers to create an account for a digital gift card purchase. Even better, ask them to enable multi-factor authentication (MFA) on their account. Progressive order limits that increase with account age can be another way to limit this type of e-commerce fraud.

The technology powering gift card systems needs regular updates. Modern protection requires end-to-end encryption for card numbers, click-fraud protection, real-time balance monitoring, and integration with anti-fraud databases. Stores using these advanced systems see significantly less gift card fraud than those using older technology.

Clear fraud reporting procedures complete the security picture. When fraud is detected, every employee should know exactly how to report it and what information to collect. Quick reporting can help law enforcement track down fraud rings and prevent further losses.

DataDome’s Approach to Gift Card Fraud Prevention

Gift card fraud prevention requires sophisticated technology that can adapt as quickly as the fraudsters. DataDome’s approach focuses on stopping fraud in real-time while making sure that genuine buyers can still easily buy and use gift cards.

At the core of that sits advanced bot protection. When fraudsters use automated scripts to test thousands of gift card numbers or drain card balances, DataDome instantly recognizes and blocks these automated attacks. Unlike basic bot protection that only looks at obvious signals, DataDome analyzes hundreds of parameters to spot even sophisticated bots that try to mimic human behavior.

Real-time behavioral analysis adds another layer of protection. DataDome monitors how users interact with gift card systems, looking for patterns that indicate fraud. For example, a genuine customer might check their gift card balance once or twice, while a fraudster’s automated script might check hundreds of card numbers in minutes. DataDome spots these suspicious patterns instantly and stops the fraudulent activity before cards can be drained.

DataDome’s approach works because it adapts continuously. As fraudsters develop new techniques, our machine learning systems analyze attack patterns and automatically update our protection. This means businesses don’t need to constantly update their security rules. DataDome handles that automatically.

All this happens without adding friction for legitimate customers. DataDome works silently in the background, only becoming visible when it detects actual fraud attempts. This means businesses can offer the convenience of gift cards while still protecting their customers and revenue from sophisticated fraud schemes.

Protect your gift cards with DataDome’s industry-leading fraud prevention platform. Contact us today for a free demo and see how we can secure your gift cards against sophisticated fraud attacks.

Sources

1. https://www.researchandmarkets.com/report/united-states-gift-card-market
2. https://www.ftc.gov/system/files/ftc_gov/pdf/CSN-Data-Book-2022.pdf
3. https://www.amlintelligence.com/2024/08/news-us-homeland-security-warns-of-rising-gift-card-fraud-linked-to-chinese-ocgs
4. https://mgaleg.maryland.gov/mgawebsite/Legislation/Details/SB0760?ys=2024RS