A survey conducted by Blackhawk Network finds the average shopper plans to spend almost half of their holiday budget to buy gift cards this year versus only 39% in 2023. The global gift card market was valued at $1.3 billion USD in 2023, and it is projected to reach more than $5.2 billion USD by 2032.
Integrity of gift card programs
While gift cards continue to be top of mind for consumers for streamlined gifting, gift card fraud is a growing concern for consumers and businesses alike. According to the U.S. Department of Homeland Security’s Homeland Security Investigations (HSI) unit, gift card fraud, perpetrated by Chinese and other organised retail theft (ORT) rings, can be attributed to losses in the hundreds of millions of dollars globally, and is being used to fund other illicit crimes such as drug and human trafficking.
The retailers implement procedures to mitigate attacks. Using data insights to detect emerging threats and identify hidden connections is among the ways retailers can protect the integrity of their gift card programs.
How gift card fraud is manifested
Typical physical gift card scheme involves purchasing items using stolen credit cards
Gift card fraud occurs both at physical locations and online. A typical physical gift card scheme involves purchasing items using stolen credit cards and then returning the items for store credit or gift cards. While some stores have strict and well-enforced return policies to ensure that only customers entitled to refunds receive them, fraudsters employ fake tracking ID (FTID) tactics that focus on bypassing identification checks during returns, enabling them to return stolen merchandise or exploit refund policies.
They use a combination of fake IDs and altered receipts or rely on lax return processes to achieve their goals. Once gift cards are obtained, criminals can sell them at a discount or use them for personal purchases, effectively converting stolen goods or false claims into untraceable funds.
Tactics to convince consumers
One tactic involves draining a gift card by obtaining the barcode, Card Verification Value (CVV) number, personal identification number (PIN), or activation code from beneath the slim cardboard packaging. Once they obtain the code(s) from physical cards, they reseal them, monitor online for consumers to buy and load the cards, then spend the balances before the consumers can.
Some merchants have sought to combat this by keeping store-branded gift cards behind the checkout counter, handing them out after purchase. However, this approach can be costly and inconvenient for both retailers and customers, as it requires additional resources for in-store management and potentially slows the purchasing process.
Other online tactics involve people who misrepresent themselves in a variety of phishing scams to convince consumers to purchase gift cards, then provide the card details to others who then drain the cards. Scammers tell the victim which gift card to buy (and where). They might say to put money on a card for an online store, a streaming service, or a specific retail store. These scammers often work as part of an organised crime network.
Retailers leveraging open info, AI, to combat gift card fraud
Retailers are certified to improve the monitoring and analysis of gift card trade patterns
A growing number of retailers are leveraging publicly available (PAI) and hard-to-reach data and analytics to extract key insights that help fight various forms of gift card fraud and stay ahead of evolving fraud tactics. With such tools, retailers are empowered to improve the monitoring and analysis of gift card transaction patterns, identify anomalies, and implement proactive measures to prevent fraudulent activities before they can impact consumers and sales revenues.
Retailers need this type of approach in their efforts to battle scammers, who continue to refine tactics for draining gift cards and committing other types of retail fraud. Beyond simply refining their techniques, fraudsters continue to advance their use of technology to commit their crimes. For example, cybercriminals also use bots to perform brute-force attacks on gift card websites. They are increasingly using AI to perpetrate gift card fraud.
Latest versions of AI and LLMs
Retailers need to continually upgrade their fraud-fighting strategies and technologies as well. They can lean into PAI and analytics, in conjunction with existing security operations and investigations, to safeguard the integrity of their gift card programs and demonstrate their commitment to customers, reinforcing brand trust.
In addition to leveraging the latest versions of AI and large language models (LLMs), retailers can take advantage of open-source intelligence (OSINT). By leveraging PAI and difficult-to-obtain data with analytics, brands are using OSINT to more quickly seize on evolving threat patterns to recognise current and shifting fraud schemes and stay ahead of evolving fraud tactics. In this way, the AI operates as a resource multiplier, compiling and processing data at faster-than-human speeds, while enabling the ability to extract actionable insights at scale. Users can make more accurate and timely decisions.
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| Retailers need to upgrade their fraud-fighting strategies and technologies. |
Safeguarding gift card revenues, client trust, and label integrity
OSINT can inform retail security managers, loss prevention directors, fraud investigators, and others to help spot and deter gift card fraud. By using AI to detect patterns and anomalies, OSINT solutions can help fraud specialists spot patterns of suspicious activity that may indicate distinct instances of fraud. AI further helps fraud specialists identify members of ORT rings by uncovering hidden connections among seemingly unrelated individuals and transactions.
The market for retail gift cards is large and continues to grow, and so too, is the gift card fraud threat. By adopting OSINT for fraud prevention, retailers can stay ahead of tech-savvy criminals, safeguarding gift card revenue streams as well as customer trust and brand integrity.
