Egift Card Fraud Prevention: The Complete Guide
- August 8, 2023
- 5 minutes
Egift card fraud is a growing threat to businesses that offer digital gift cards. And while these cards present many benefits — such as customer loyalty and more revenue — they come with risks. However, you can mitigate the negative impacts by recognizing gift card scams and implementing prevention tools.
What Is Egift Card Fraud?
Egift card fraud is a scheme where a fraudster buys gift cards online using stolen payment information then uses or resells them. Essentially, it’s a way to get cash. And because egift cards don’t require buyers to attach hardly any personal details to them, fraudsters can easily get away with scams.
Types of Egift Card Scams
There are several common fraud scams involving egift cards.
Secondary marketplace scam
In this scam, a fraudster will buy gift cards online from retailers or restaurants using stolen credit cards and debit cards. Then, the fraudster resells those egift cards on secondary marketplaces like eBay.
Meanwhile, the person whose payment information the fraudster used to buy the egift card notices a fraudulent charge on their bank statement. They call the bank to dispute the charge and the bank refunds the customer, then issues a chargeback to the business.
Card testing occurs when a fraudster makes small purchases with stolen payment information to validate which cards work. Egift cards are prime targets for this kind of scam because fraudsters can make these purchases in low denominations without raising suspicion.
And once they validate cards that work, they typically move on to make larger purchases elsewhere.
In an account takeover attack, a fraudster forcefully gains access to a customer account. The goal is to steal anything with monetary value — such as loyalty points or account balances — or steal personal information. They can easily convert account balances into cash by purchasing gift cards and selling them online.
If a business doesn’t have any account protection protocols in place, fraudsters can also use existing gift card balances on a customer’s account to make purchases on that business’s website and ship the goods to a different address.
Gift card number hacking
In this scam, fraudsters attempt to find valid egift cards by deploying bots to test egift card numbers against combinations of activation codes. Because bots are computers designated to run tasks automatically, they can test thousands of card numbers and codes within minutes.
Sometimes fraudsters use social engineering tactics — like phishing scams or phone scams — to obtain gift cards. Often, they will target older adults that they can easily manipulate.
Typically, fraudsters will call an elderly person pretending to be an employee of a government agency and say that a family member is in jail. The only way to bail that family member out is by sending money in the form of gift cards. So the elderly person purchases digital gift cards and gives the card numbers to the fraudster.
How Egift Card Fraud Affects Merchants
Like other fraud schemes, egift card fraud can have a multitude of negative effects on your business — profit loss, inventory loss, and brand damage, to name a few. Understand the risks so that you can take the necessary precaution to avoid this type of fraud altogether.
Chargebacks and penalties
When cardholders discover unauthorized purchases, they typically dispute those charges with their banks. So if a fraudster buys egift cards with stolen payment information from your business, you will be liable for any associated chargebacks and fees.
Too many chargebacks can put you at risk of breaching dispute thresholds with card brands — which can lead to enrollment in a chargeback monitoring program.
If a customer becomes a victim of an egift card scam through your business, it’s likely that customer may stop purchasing products or gift cards from you again. That’s because most customers blame businesses for fraud. And when customers stop shopping from you, it can hurt your overall reputation — causing your business to look untrustworthy.
Fraudulent purchases almost always fall back on the merchant. If a cardholder disputes charges for egift cards, you not only lose the revenue from the original sale, you have to refund the cardholder and potentially pay penalties and fees.
Scams like card testing reveal weaknesses in your security systems. If fraudsters learn that they can use your business to make test purchases with egift cards, they are likely to use your business to commit other dangerous fraud schemes.
Egift Card Fraud Prevention Tips
Wondering how to stop egift card fraud and chargebacks? Fortunately, there are ways to help protect your business.
Increase website security.
Add captchas to your website to stop scripts and bots from running card testing attacks or egift card number testing. Also set up firewalls so that you can better monitor your site traffic.
Require more information from customers.
When customers make egift card purchases, require that they give you more information such as name, physical address, and email. Typically, fraudsters get away with e-gift card fraud because they don’t have to provide personal information like a physical address to purchase. However, requiring additional information can help identify potential fraud.
Add identity verification steps.
When a customer tries to redeem a gift card, add an identity authentication step — such as multi-factor authentication for unknown customers and passive authentication for known customers. Additionally, you could require customer sign in to an account to redeem a gift card.
Place limits on large or repeated gift card purchases.
Set up your website to automatically decline transactions for egift cards with unusually high amounts or for multiple gift card purchases made in quick succession. While it’s possible a legitimate customer could buy a gift card with a balance of $1,000 or more, it’s very unlikely.
Implement account security protocols.
The best thing you can do to keep your loyal customers safe from account takeover attacks is to implement account safety protocols. This will help prevent fraudsters from breaking into accounts and stealing valuable information or draining the accounts.
Egift Card Fraud Frequently Asked Questions
Want to know more about egift card fraud and how to manage it? Here are some of the most frequently asked questions we’ve heard from other merchants. Check out our team’s answers.
What do I do if a customer reports that they have been scammed using gift cards?
You can refund the customer and resolve the issue; or you can deny a refund and risk the customer filing a dispute.
Decisions like this are usually based on several factors such as the customer’s lifetime value (CLV), the current state of your brand’s reputation, and your chargeback-to-transaction ratio.
Can egift cards be traced online?
The only way a gift card could be traced is through receipts for purchases. Egift cards cannot be traced back to a specific person unless they are tied to personal identifying information.
Are gift cards worth the risk?
Despite the risks associated with egift cards, they are still worth offering to your customers. They’re a great way to maintain positive relationships with customers and an excellent way to bring in revenue.
Customers often overspend when they use a gift card — bringing in revenue on top of the profits you already earned from the gift card sale. On the flipside, some customers may forget about the gift cards and never use them or don’t use the full balance. In that case, you earn revenue without shipping out merchandise.