Gift Card Fraud Prevention
Table of Contents
- Why Is Gift Card Fraud Growing?
- What Types of Gift Card Fraud Exist?
- Gift Card Refund Fraud
- Gift Card Number Theft
- Buying Gift Cards With Stolen Credit Cards
- Account Takeover Gift Card Purchases
- Physical Gift Card Tampering
- How Can Merchants Prevent Gift Card Fraud?
- Gift Card Fraud Leads to Chargebacks
Gift cards are among the most common purchases during the holiday season, and remain popular year round. In 2025, the global market was valued at more than $1.24 trillion and projected to expand further in the coming years. The United States alone represents a significant share of this activity, accounting for over one-third of the worldwide market with roughly $447.7 billion in sales.
These figures reflect enduring consumer demand for convenient, flexible gifting options, whether physical cards presented in stores or digital cards delivered instantly via email or mobile apps.
Unfortunately, gift cards are also a prime target for fraudsters—criminals who exploit inherent vulnerabilities in how cards are issued, activated, and redeemed. Gift card-related scams make up a significant component of fraud losses reported by consumers. For merchants, gift card fraud will often result in a chargeback once the cardholder realizes they've been tricked.
While gift cards can drive sales, enhance loyalty, and provide a desirable product for shoppers, they also come with real threats. Recognizing common schemes and implementing robust fraud prevention strategies can help merchants protect their revenues and maintain customer confidence even as gift card usage continues to rise.
Why Is Gift Card Fraud Growing?
Gift card fraud is growing largely because gift cards combine high liquidity with low traceability, making them an appealing target for cybercriminals. Once funds are loaded, they can be spent or transferred rapidly with limited oversight. Criminals exploit these characteristics to easily monetize a variety of forms of fraud.
As digital gift cards become more widespread, attackers increasingly automate their methods, creating a rising volume of fraud attempts that merchants must manage. At the same time, consumers’ desire for fast, frictionless checkout experiences often encourages merchants to relax identity verification, unintentionally lowering defenses. These gaps give fraudsters the ability to purchase gift cards with stolen payment methods or drain existing cards before legitimate customers even attempt to use them.
Finally, gift card fraud is accelerating because organized fraud networks have professionalized their operations and built thriving secondary markets. Stolen or fraudulently obtained gift cards can be resold anonymously at a discount, turning them into a reliable cash-out channel for a wide variety of scams.
Social engineering scheme that direct victims to purchase a gift card and share the card number continue to proliferate, generating substantial losses that often flow back to merchants in the form of disputes and chargebacks. As long as gift cards remain both popular with consumers and easy to exploit, fraudsters will continue focusing on them, making it essential for merchants to strengthen controls, monitor unusual patterns, and invest in layered fraud prevention strategies.
What Types of Gift Card Fraud Exist?
There are two types of gift cards: open-loop gift cards that can be used with any merchant, such as those from Visa or Mastercard, and closed-loop gift cards tied to a single merchant. Most of the information here will apply to both.
Gift cards are typically untethered to individual identities, hard to trace, easy to convert to cash or resalable goods, and ubiquitous. Better yet for fraudsters, they’re not bound by the same extensive regulations as credit and debit card transactions. It’s no wonder so many different scams have developed around gift cards.
Gift Card Refund Fraud
If a customer wants to return a product and have it refunded to a gift card, it could be part of a scheme to extract untraceable funds from a stolen credit card. Here's how it works:
Fraudsters use a stolen card number to make an online purchase, then send it back for a refund and ask for the funds to be put on a gift card. Eventually, the payment card’s true owner will report the unauthorized transaction and request a chargeback. The merchant loses twice the transaction amount plus the chargeback fees and hidden costs. Meanwhile, the fraudster has a gift card they may be able to use or sell without issue.
This method of fraud can be easier to get away with during the holidays, as customers returning gifts might have a legitimate reason to request their refund be put on a gift card rather than returned to the original method of payment.
Gift Card Number Theft
Fraudsters can virtually print money for themselves by hacking into a company gift card database to steal card numbers and activation codes. This can be done via brute force hacking methods, malware, or using phishing or social engineering attacks against company employees. These last two methods are by far the most common.
Merchants who manage their own gift card data must make sure robust information security technology is in place to defend it against hackers and should track gift card numbers and their usage carefully to look out for suspicious activity.
All employees with access to company computers or systems should receive cybersecurity awareness training, ideally with an occasional refresher. Merchants can also run tests such as simulated phishing emails or social engineering attempts to assess the effectiveness of the training. Areas of weakness can be identified and emphasized in future training.
The most important things for employees to remember are to keep an eye out for unusual or suspicious emails and to never plug an unknown device into a computer. Leaving a USB drive stamped with the target organization's logo in a parking lot is a common method of attack, and even the US Department of Defense has fallen victim to it.
Buying Gift Cards With Stolen Credit Cards
Fraudsters may use stolen credit card numbers to buy gift cards online and use or resell them before the merchant gets hit with the inevitable chargeback. This is one of the easiest ways for a fraudster in possession of stolen payment credentials to make a quick profit.
Things like AVS/CVV verification, 3-D Secure, and recognizing some of the telltale signs of fraudster behavior can help you stop these transactions before they go through and become a problem.
Some merchants may benefit from anti-fraud tools that use machine learning to identify potentially fraudulent transactions, assigning them a risk score based on information gathered from past transaction data.
Account Takeover Gift Card Purchases
When fraudsters gain access to a customer’s account, they may have free reign to make purchases with stored payment credentials. In many cases, however, this kind of fraud is discovered before the merchandise is shipped out, since customers usually receive an email confirming any purchase.
A more reliable way for fraudsters to wring actual cash out of a stolen account is to buy gift cards that can be used immediately. Most merchants would benefit from putting a system in place to automatically flag large or repeated gift card purchases for review.
Physical Gift Card Tampering
When you sell physical gift cards in open retail locations, you’re open to a few different kinds of schemes that involve tampering with them. While there are various protections in place to prevent this, most of them are relatively easy for determined or experienced fraudsters to get around.
One method involves copying one gift card’s barcode onto other cards, so that when shoppers purchase and activate the cloned cards, the fraudster has access to those funds.
Fraudsters may also copy down the card numbers and activation codes on cards still on the sales rack, using stickers to cover up any scratch-off coverings they removed. As soon as an honest customer purchases and activates one of the cards, the fraudster can start using it.
When merchants aren’t in direct control of the retail environment in which their cards are sold, it’s difficult for them to prevent this kind of exploitation. Smaller merchants may be able to be more restrictive about how and when customers have access to unsold gift cards. Customers should be aware that it’s always safer to buy gift cards online, direct from the merchant, and that any time you buy a gift card from a retail location you should change its PIN as soon as it is activated.
How Can Merchants Prevent Gift Card Fraud?
- Using effective fraud detection tools to block fraudulent gift card purchases
- Placing limits on large or repeated gift card purchases
- Having a system in place to track individual gift cards
Because gift cards are a common target for fraudsters, merchants may choose to require additional authentication steps for gift card purchases. It's also wise to block or require additional authentication for purchases over a certain amount or when multiple gift cards are purchased with the same payment card or from the same IP address.
In order to obtain additional customer information, merchants could choose to require the recipient of a gift card to create an account before using it. While many merchants avoid implementing this requirement more broadly over fears of cart abandonment, that's not an issue with closed-loop gift cards.
Merchants should have a way to tie a chargeback on a gift card purchase to the individual gift card number and either block or void the balance on the card. Note that while this is usually permitted as long as the original purchaser of the gift card has been refunded, laws regarding gift cards vary by jurisdiction.
Gift Card Fraud Leads to Chargebacks
Remember, a gift card security problem is a chargeback problem waiting to happen — or more likely, a chargeback problem already happening. The customers whose payment cards get used to fund the gift cards used in these schemes are virtually guaranteed to dispute the charge sooner or later, and even the best chargeback representment strategies won’t do much to help you when true fraud is the reason.
Don’t treat gift card management like an afterthought. Conduct information security reviews and do what you can to enable as much tracking and monitoring as you need to identify the sources of gift card fraud and take whatever action might be necessary to stop it.
If you're struggling to prevent gift card fraud or any other chargeback issue, you may want to look into hiring a chargeback management firm. They can help you set up the appropriate anti-fraud measures for your business, as well as prevent and fight chargebacks in general.
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