The Gift Card Industry: a Fraudsters' Paradise?

Gift cards are very popular, especially during the holiday season. Sadly, fraudsters are also looking to take advantage of popular gifting technology and e-commerce stores are the weakest link. Why that is, and how can you protect your business from (online) gift card fraud? Read on to find out. 

The rise of the gift card industry

We’re all familiar with gift cards. These useful cards hold value and take the burden of choosing the perfect present out of our hands. But when was the modern gift card, as we know it today, first introduced? 

In late 1994, a man named Neiman Marcus invented the first gift card that used a payment infrastructure. Blockbuster Entertainment was the first company to test this solution in 1995, and it ended up going nationwide the following year. No one could have predicted what gift cards would become in the next three decades. However, the global gift card industry is estimated to be worth $845 billion in 2022 and is expected to exceed $2 trillion by 2027. In fact, it has grown so much that more than half of Americans had unused gift cards in 2021.

The global gift card market is growing at an exponential rate, and the reasons why are plentiful. 

To begin with, gift cards became a huge relief for consumers, because there was no longer an obligation to spend time looking for a present that may or may not satisfy the recipient. Moreover, gift cards were an opportunity for merchants to secure their revenue. Gift cards hold a monetary value that can only be spent in the shop of the card’s issuer. As a result, gift card holders are locked in and limited to spending their money in that specific store. Whether the gift card holder shows up to redeem the gift card or not, the merchant has secured the profits. In addition, gift cards can serve as a marketing tool to increase brand awareness and woo first-time customers.

Gift cards, in general, benefit everyone: the merchant, the buyer, and the recipient. They are simple, but clearly meet the needs of all parties.

Why gift card fraud is so popular

It is no secret that the gift card industry has a high rate of fraud. Fraudsters started attacking this market almost immediately after it appeared. There are numerous reasons for scammers’ interest in this industry, but the following reason is the most common: anonymity. 

Although gift cards have monetary value, they are rarely linked to a specific person’s personal information. In other words, because gift cards do not require identification, they can usually be used by anyone, making them perfect for fraudsters.  Furthermore, despite the increase in credit card safety over the years, most of the anti-fraud solutions implemented rely on the availability of consumers’ private information, which is typically absent in gift cards. 

The impact of gift card fraud on businesses and consumers

Fraudsters are drawn to this industry for a variety of reasons, but only some are aware of how this affects businesses and customers. For the average consumer, the impact is rather small. Most frequently, scammers buy gift cards using the credit card information of unsuspecting customers. However, consumers can submit a chargeback and get their money back. Businesses, on the other hand, are far more affected. The majority of the time, companies are forced to lose money because they must pay chargeback costs and refund their customers. Also, the sold gift cards are irretrievable once it’s been sent to the fraudster. While consumers are impacted rather lightly, fraud in the industry possesses a huge threat to businesses and their well-being in terms of reputational damage.

How can businesses avoid gift card fraud?

Businesses at risk of gift card fraud have undoubtedly thought about possible solutions at least once. However, not all solutions are equally effective. Learn more about how to fight gift card fraud by listening to the experts.

Check out our webinar: How to avoid gift card fraud this holiday season

The webinar, held on December 6th, is hosted by Alpacomm in collaboration with Loyalty Security Alliance. Our featured guests, industry expert Tom Tomlin, gift card merchant Juliette Terrace and fraud prevention specialist Lisa de Vreede, will engage in a lively discussion on gift card fraud and the potential solutions. Interested? Make sure you register today.