The popular arcade game whack-a-mole is similar to combatting credit fraud and gift card scams. Once a scam is uncovered and “whacked,” the fraudsters raise their head through a new hole. With EMV adoption nearly complete, fraudsters are moving online and targeting gift cards where magnetic stripes are still in use. Thieves find gift cards to be the gift that keeps on giving!

This past Christmas the media covered a heart-breaking gift card scam when a small non-profit organization serving under-privileged children received a $1500 donation of Walmart gift cards to buy Christmas presents, only to be told there was a zero balance when they checked out.

This story hit home for me because I have been a court appointed special advocate for children in foster care for the last 30 years and I know the joy these donated gift cards bring. A few years ago, four of my foster kids were each given a $150 Walmart gift card for Christmas. The thing I remember most is how they wanted to buy gifts for their siblings or parents and not for themselves. Each of them were so careful and deliberate with their gift choices.

If the media story happened to my foster kids, they would have been devastated to find out there was no money on their cards at check out. These stories are becoming too familiar and they occur year-round.

Scope of the Problem

While gift card scams are not as lucrative for criminals as credit card and debit card theft due to their fixed value, which is generally low, they still present a problem for merchants considering the financial loss and the erosion of consumer trust.

For example, the Walmart incident and the media attention it created about their policy of not replacing lost or stolen cards, or addressing the matter of cards that are used fraudulently by way of stolen “information,” raised many concerns. While Walmart ultimately made good on the cards, the publicity was not good.

Gift card scams in the brick & mortar business:

Gift cards are an effective marketing tool for brick & mortar merchants to increase sales and profits. It is a financial win-win because if the customer spends more than the value, which they nearly always do, the profit is greater, and if the sale is less than the value, the money left on the card stays with the merchant.

Gift cards continue to be popular because research shows consumers prefer a gift card so they can select their own gift. This preference for gift cards has not been lost on merchants who seek to benefit by adopting a gift card and loyalty program. However, along with the many benefits merchants must also be aware of the potential for fraud and take steps to protect their business and their customers.

How do the fraudsters steal gift card balances?

Merchants with brick and mortar stores need to be vigilant about gift card scams. To stay updated, click here to subscribe to DigiPay’s merchant fraud alert. In the case of the Walmart gift card scam, it worked like this:

  • • Merchant displays gift cards on a rack
  • • The cards are not protected as they have zero value until they are purchased
  • • The thieves take the cards and write down the card number
  • • The thieves scratch off the security sticker to reveal the pin number
  • • They replace the scratched off security sticker with a new one (readily available on many websites, and not the dark web)
  • • The thieves return the cards to the rack
  • • The thieves use software to continually check the card number and pin. When they receive an alert that the card has been sold they drain the value before the purchaser knows what happened

Another popular tactic is known as gift card cloning. It is similar to the scam above, but the thief uses a magnetic strip reader/writer, sold online, to create a new card that can be used in-store. In this scenario, the thief:

  • • Steals blank gift cards from a display
  • • Scans the card through the mag stripe reader
  • • Returns the cards to the store after they have uploaded the number into software that will alert them when the cards are loaded with money
  • • Thief uses a magnetic card writer to create a new card with a magnetic stripe that reproduces the information on the card

What E-commerce merchants need to know about digital gift card fraud:

Digital gift cards, or eGift card sales are a great way for online merchants to increase revenue and cash flow. In 2016 e-gift card sales were 10 billion dollars, and sales in 2017 are tracking at an estimated $15 billion.

Digital gift cards are one of the fastest growing segments of the gift card market, but it is also a target for thieves. What many merchants don’t understand is that cyber thieves are organized crime. They invest in R&D and like any thriving enterprise they focus on low hanging fruit. As EMV cards have made card present transactions more secure, fraudsters are targeting e-commerce and gift cards.

While the holiday time is peak season for digital gift card fraud it is important for merchants to realize this is a year-round problem that can be mitigated with the right approach. At DigiPay we have found a combination of human intelligence and a technology focused antifraud system is the most effective way to thwart this loathsome criminal activity.

Digital gift card scam frauds include:

  • • Hackers using bots that search the internet for a gift card number that’s recently been activated. Once the bot locates a match, hackers either use the card or sell it on the gift card resale market.
  • • Criminals using stolen credit cards to purchase e-gift cards from online retailers.

It is important to note that very low dollar e-gift cards are at risk because they can be used to test stolen credit card accounts. Once the fraudster confirms the card is good they are off to the races purchasing high-value goods that can be resold, including digital gift cards, electronics, jewelry, gems, and high-end luxury goods.

The unfortunate reality is e-gift cards will remain popular with fraudsters because the goods or services they can purchase with the card have resale value. Well known retail stores have the highest resale value, typically 80 to 90 cents on the dollar, but is important to remember every e-gift card has some value if the price is right. When the cost of the e-gift card is zero, the potential for profit is high, so this makes every ecommerce merchant a potential target.

As if this isn’t enough, merchants will be hit with chargeback fees and fines when the victim of the stolen card reports the fraud to their bank. To add insult to injury, in this era of social media, merchants risk bad publicity if they do not honor the digital gift cards of consumers who purchased them on the resale market.

At DigiPay, we know the best defense is a strong offense. If you are looking for a more secure gift card and loyalty program we have the solutions you need. Call us now at (888) 899-9811 or email Unlike our competitors, we take phone calls and we like to build relationships.