Gift cards are often positioned as a low-friction, high-margin product. They are prepaid, widely accepted and popular with both consumers and corporate buyers. Yet a recently uncovered fraud scheme resulting in $14 million in losses exposes how vulnerable gift card programmes can be when anti-fraud controls are missing or under-prioritised.
The relevance for businesses is not the specific incident but the pattern it reveals. This level of loss does not occur because fraudsters are unusually clever. It happens because systems allow fraud to move faster than detection.
When legitimate transactions mask illegitimate outcomes
At a transactional level, everything appeared normal. Gift cards were purchased through standard channels, activated correctly and spent within expected parameters. There were no obvious red flags, no failed payments and no suspicious customer behaviour at checkout.
The fraud only became visible once customers attempted to use their cards and found the balances empty. By then, the value had already been drained. This is the most damaging type of fraud for a business because it blends into expected activity and is only discovered after the loss is final.
Many organisations still rely on post-incident investigation rather than real-time prevention. But when fraud operates at machine speed, delayed controls simply cannot keep up.
Why gift cards remain a high-risk blind spot
Despite their popularity, gift cards are frequently excluded from core fraud strategies. They often sit outside payment risk teams, use lighter controls than digital goods and rely heavily on physical handling or customer vigilance rather than system intelligence.
As a result, businesses unintentionally create ideal conditions for abuse:
- Value is released instantly at activation
- Monitoring focuses on reconciliation, not behaviour
- Fraud is detected through complaints, not signals
- Losses are written off as isolated incidents
Individually, these choices seem reasonable. Together, they form a structural weakness that fraudsters are quick to exploit.
The commercial impact extends beyond the card value
The headline figure may be $14 Million but the true cost is significantly higher. Customer support volumes increase as complaints rise. Refunds and goodwill gestures eat into margins. Chargebacks and internal investigations consume time and resources. More importantly, trust erodes quietly. Gift cards are often bought as presents or incentives. When they fail, the frustration reflects on the brand, not the fraudster. Over time, this damages repeat usage and confidence in prepaid products as a whole. If losses are only measured when customers complain, there is a strong chance the real exposure is already being underestimated.
Prevention has to happen before value is released
The key lesson for businesses is straightforward. Once a gift card is activated without proper risk assessment, the opportunity to stop fraud has largely passed. Effective protection focuses on the moment where value moves from potential to real. That means applying behavioural analysis, velocity checks, and risk scoring at activation, not days later during reconciliation. This approach does not add friction for genuine customers. It simply ensures that value is not released blindly.
The question worth asking is simple: if the same scheme targeted your gift cards tomorrow, would you detect it immediately or only once customers started complaining?
How can businesses stop gift card fraud before balances are drained?
Protectmaxx helps businesses detect and block gift card abuse at the moment value is released. By analysing transaction behaviour, velocity patterns and real-time risk signals, Protectmaxx identifies fraud that looks legitimate on the surface but causes revenue loss in the background. This allows merchants to prevent balance drain, reduce chargebacks, and protect customer trust without disrupting genuine purchases.
Curious how Protectmaxx can help you detect gift card fraud before customers notice? Talk to our Revenue Geeks and explore a smarter approach to fraud prevention.
