Exposing Common Examples of Holiday Gift Card Fraud

For their convenience and choose-your-own-adventure appeal, gift cards are the top-selling item during the holidays. What’s more, retailers often offer customers gift cards or store credit to appease returns. This practice is more common during the holidays when 15.4% of merchandise sold is returned.

Yet, while consumers love gift cards, retailers must brace for the fraud and abuse that comes with them.

Gift card fraud is getting more sophisticated every day.

Gift card fraud can take many forms inside and outside a retail organization. An Appriss Retail case study with specialty flooring retailer Floor & Decor, for example, discussed how one store associate attempted 46 fraudulent returns worth nearly $10,000 in gift cards. The retailer, which has more than 200 stores in the U.S., caught the cashier’s activity through Appriss Retail’s Secure and Engage solutions.

The Floor and Decor example highlights the impact of gift card abuse, and these scenarios will become more common during a busy holiday season. Here’s a look at leading forms of gift card fraud both from internal associates and external fraudsters.

Managing internal retail gift card fraud

In the Floor and Decor case study, presented at the Appriss Retail EVOLVE conference, the retailer learned that fraudsters preferred gift cards and store credits over actual products. The gift cards had been known to sell for 90% or more of their face value, making them a lucrative crime. The abuse became more complicated when orchestrated by an employee.

Nearly 60% of respondents said there’s been an increase in gift card fraud and abuse, according to the 2023 National Retail Security Survey.

For any retailer, employees have inside knowledge of store procedures, including gift card activation and transaction processes, making them a potential target for fraud. In some cases, employees may collude with external fraudsters, providing them with information or assistance in committing gift card scams. Additionally, employees may manipulate refund processes, generate fake returns, pocket the refunded amount, or create fraudulent transactions involving gift cards.

With the Engage platform and its AI-powered solution, the retailer is alerted of the fraudulent behavior and facilitates an automated validation process. The system reviews employee IDs and transaction data at a macro level to identify unusual behavior and uncover an associate attempting fraud.

Exposing external retail gift card fraud

Fraudsters outside the retailer’s organization can also attempt to steal from a store in various ways involving gift cards. In the 2023 National Retail Security Survey, nearly 60% of respondents said there’s been an increase in gift card fraud and abuse, including telephone scams where fraudsters attempt to lure employees to purchase gift cards for them.

Be it by phone, online, or inside traditional retail stores, gift card fraud can occur.

Here are five common gift card scams during the holidays:

• Online auctions: A fraudster takes stolen or fake gift cards and sells them on an online auction site, marketplace, messaging app, or the dark web.
• Tampering in stores: Criminals enter physical store locations and tamper with the gift cards on shelves or displays. The fraudster records the card’s identification information and drains its values post-activation.
• Use of stolen cards: Thieves can steal physical gift cards in stores or compromise digital gift cards, using the card — or selling it — before the legitimate owner can use it.
• Bulk purchases: Fraudsters use stolen or compromised credit cards to buy bulk gift cards for resale or quick redemption.
• Unsecured displays: Pre-loaded physical gift cards on displays that aren’t protected by security measures can become easy targets for theft and fraud.

Preventing gift card fraud in retail stores

Gift card fraud is getting more sophisticated every day. Fraudsters can clone, tamper, and steal gift cards to sell online, making high-traffic online and in-store retailers more susceptible during the holidays.

Retailers can frequently miss fraudulent gift card activity associated with holiday returns, primarily due to a lack of appropriate technology to identify patterns and unusual transactions.

However, by implementing best practices, strategically integrating AI into their operations, and training employees, retail stores can effectively prevent gift card scams and protect their loyal customers.