Payments 3.0: Humanity And the War on Gift Card Fraud

One morning, I was checking out at a grocery store when I saw the store manager rush out of her office. “Who has the big gift card purchase?” she asked, hurrying down the row of cash registers.

She had gotten a call alerting her to a fraudulent transaction and asking her not to let it go through. Even though my purchase was complete, I lingered to watch how this would play out, partially out of curiosity and partially out of concern. More on that later.

Fraudulent attacks on gift cards take on multiple forms. We hear about people who were convinced to buy gift cards as part of a scam, known as victim-assisted fraud. Fraudsters also try to use package tampering to steal funds loaded onto gift cards.

While these stories are terrible, they don’t represent the reality of gift cards for gift givers or recipients.

Each holiday season, the National Retail Federation surveys consumers about gifts they would like to receive and ones they are planning to give. Gift cards are consistently at or near the top of both lists. In 2023, 55% of consumers said they wanted to receive a gift card. The NRF said it expected U.S. gift card spending during the 2023 holiday season to reach $29.3 billion.

So, though gift card fraud is a problem, clearly industry efforts to mitigate the problem must be working, because consumer confidence in and desire for gift cards remain high.

Fraudsters look for any way they can compromise cards. So issuers must continually improve security on all fronts, including packaging, transaction monitoring, and education for customers and employees.

Since the Innovative Payments Association focuses on open-loop cards, I asked the Retail Gift Card Association about this topic.

As scams evolve, the RGCA’s efforts evolve as well, with a focus on educating consumers about gift card tampering. The organization has partnered with government agencies to share insights and strengthen the fight against fraud, said Kim Sobasky, a spokesperson for the RGCA, in a message.

Fraud-mitigation methods have paid off, but there is no one solution to the problem of gift card fraud.

Back to the grocery store. The manager could not stop the sale, but that may have been for the best. From what I was able to gather from eavesdropping, this was probably a case of someone using a stolen credit or debit card to buy gift cards. Stopping the criminal in store may have been dangerous.

But the store and the back office had the transaction records, which means they likely could block those cards. We can all take a little comfort from the idea of a frustrated criminal trying to use blocked gift cards.

Now, if the buyer had been trying to buy gift cards because they had been convinced a family member was in trouble, the manager might have been able to help. But it’s tough to convince people they are being scammed.

FBI agents have recounted stories to me where they have met with victims to explain how they are being swindled, only to find out that victims continued to send criminals money, even after the meeting.

Additional laws or monitoring systems will not prevent people from caring about their family members—and would we want a world where they could? This is the human part of the problem, where we need people to look out for one another and discuss when something seems off.

Fraud prevention is a team effort. We know that criminals work together. So the industry, law enforcement, and shoppers must do the same.

—Ben Jackson bjackson@ipa.org