Gift cards are the most convenient and one of the most popular gifts for the holiday season. Not only can you purchase a plastic gift card for a specific retailer, restaurant or experience, you can also purchase them digitally and send to another person through email, social media and virtually through the cloud. Billions are spent on gift cards yearly; it is a thriving business which fraudsters are eager take advantage of by using stolen credit cards to activate gift cards. Most fraudulent gift card activity includes low dollar amounts, lessoning the prospect of jail time. The ease of converting the gift card values into cash and merchandise is big business.
The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), https://www.fincen.gov/, created anti-fraud rules and thresholds to limit the opportunity of abuse and fraud. However, organized retail crime groups are constantly looking for gaps in the system to obtain these cards illegally. These cards are used to launder money through fraudulently purchasing merchandise, convert to cash and to the extreme of using these cards to directly fund illegal activity.
Below are some best practices and scenarios you should be on the lookout for to protect your business, avoid unnecessary loss, and have peace of mind throughout the Holiday Season and into the New Year.
Closed Loop (Own branded Gift Cards for sale):
- Switching Cards – customer makes a return and a gift card or store credit card is activated with the amount of the refund. An employee can easily switch the activated gift card with an inactivated one and use valid card for their own sales or sell it to someone else.
- Fraudulent Activations – through an employee performing fraudulent returns to activate a gift card or store credit for personal gain.
- Taking Gift Card numbers – if left unattended, a gift card rack can be the perfect place for a patient thief. Gift card accounts and pins can be written down and the balances checked periodically to see when a card has been purchased. The numbers can be used online or keyed into a POS without using the plastic card. Is management taking a look at the racks to see if there are limited amounts of cards for opportunity to steal? Is the pin number area on the card still covered, not scratched off?
- Digital or Plastic Gift Cards purchased through internet marketplace – duplication of actual gift cards and the creation of fake accounts is common practice. If redemption is denied, be sure the gift card balance is checked through merchant services to see where and when it was used. Ask customer where the gift card was purchased to see if it was from reputable provider or a discount reseller.
Open Loop (prepaid bank branded Visa, MasterCard, and Amex)
- Card Cloning – Organized Retail Crime groups will purchase Open Loop Gift Cards with stolen Credit Card numbers. Use them to clone actual credit cards
- Money Laundering – Stolen credit card accounts used to buy gift cards in bulk then sell to discount resellers. These gift cards may be resold again to unsuspecting customers.
- Refund Scam – fraudster will buy merchandise with the pre-paid Open Loop gift card and return the merchandise for an exchange of an item at a slightly higher value. The difference is paid in cash. They then bring back the newly purchased item to the some store and another in the area and receive full cash back from the second purchase.
Be diligent with training your associates to spot possible fraudulent activity and have the proper policies in place to look for:
- Credit cards purchasing large quantity of gift cards or high dollar denominations.
- Open Loop gift cards being used to purchase high dollar branded gift cards or large quantities of them.
- High amount of no original receipt refunds to a gift card.
- An Employee creating fraudulent transactions for the gift cards to sell online or to friends
- Customers scamming the store to obtain gift cards for resell market.
Inevitably, fraudulent gift card activity will have a negative effect on the company’s bottom line and may impact customer allegiance to the brand. Ensure you have a profitable holiday season by ensuring your managers and employees know how to identify potentially fraudulent activity.