By Doriel Abrahams, Head of U.S. Analytics
In 2022, the global gift card industry is estimated to be worth more than $440 billion. And despite economic uncertainty, the industry is still projected to grow to more than $643 billion by 2028.
With that type of growth, you’re bound to see fraud – even with a product less enticing to fraudsters like gift cards. What you might not expect, though, is how fraudsters’ efforts to attack gift cards have changed in recent years.
One of the many things I find interesting about working at Forter is that I get to see so many pieces of the complex and intricate mosaic that makes up digital commerce and fraud. On the gift card side, I see both the times when fraudsters are attempting to use gift cards to make a purchase, and the times when they’re trying to purchase a gift card in the first place.
Gift cards present an interesting challenge when it comes to fraud prevention, with stopping fraudsters from using gift cards getting the most attention. Merchants, of course, want to prevent all fraudulent purchases, regardless of payment method. But gift cards add a complicated layer, presenting complex situations – such as when a good customer has, in good faith, bought a gift card that has been purchased with stolen funds and is now trying to use it.
Fraudsters stealing gift cards isn’t just like stealing any other item – it’s a step in a chain of crime. Because of this, more emphasis put on understanding the earlier stages can help you fight fraud later in the customer journey, as well.
Everyone Loves a Gift Card
Before diving into what’s changing or why gift cards are so popular with fraudsters, it’s worth appreciating why good customers love them so much and how the gift card industry is evolving to meet customer needs.
For some time, gift cards were considered a way of cheating on a gift – not having to put proper thought into finding the right present. But that perspective has changed significantly in recent years. Now, gift cards are thought of as a considerate way to give people the gift of choice, without having money uncomfortably change hands directly.
For convenience, versatility and speed, you really can’t beat a good gift card. Unfortunately, of course, fraudsters agree.
Fraudsters like gift cards because they’re digital (no need for a shipping address and the complexity that causes), anonymous, instant, easy to resell, versatile (in terms of the goods that can be purchased and where they can be used), and omnichannel.
For merchants, this is frustrating because there are so many fraudulent ways to use a gift card once a fraudster has obtained it, from money laundering to a step in obfuscating a crime (since fraudsters rarely use a gift card at the same store from which they purchased it), to direct monetization through reselling.
A fraudster with a gift card is a drop of poison in the online ecosystem. That’s why it’s important to pay attention not just to what fraudsters are doing with gift cards, but how and where they’re acquiring them in the first place.
A Rise in Gift Card Fraud
It’s worth noting that the Covid-19 pandemic had a meteoric effect on gift cards, both for consumers and fraudsters. People who couldn’t get out of the house still wanted to send gifts, and supply chain issues meant gift cards were a particularly safe option.
Fraudsters, both reacting to the same pressures and also eager to hide among the flood of good customers, were quick to get in on the game. Forter noted a marked increase in gift card fraud attempts during the height of the pandemic, with attempts increasing quarter over quarter by nearly 50% every quarter from Q4 2020 through Q1 2022.
Since the peak in early 2022, however, the fraud pressure on gift card purchase has waned steadily. And although attack attempts with gift cards aren’t where they were in early 2022, there has been a change in where fraudsters are attempting to use them.
Latest Trends
To explain what’s new in gift card fraud, we first must establish two different types of merchants. The first, “GC merchants,” refers to merchants and marketplaces for which selling gift cards is either all or a significant part of their business. The second, “non-GC merchants,” refers to merchants who sell gift cards attached to their own brand to complement their wider business model.
In 2021, a lot of the pressure was on GC merchants. Fraudsters were enthusiastically targeting companies who specialized in gift cards, knowing that they were under sudden pressure due to the pandemic – making it easier for fraudsters to go unnoticed. Non-GC merchants, on the other hand, saw fraud rates in the gift cards that were about half the rate of GC merchants.
Moreover, the gift card segment, for non-GC merchants, experienced only ~6X the fraud rate of their other segments. So gift cards were attacked more than most products, but by an amount that felt understandable given the popularity of gift cards during the pandemic.
That’s all changed in 2022. Now, fraudsters are targeting non-GC merchants more frequently than GC merchants. Fraud rates in the gift card segment of a non-GC merchant are 11X the rate seen by GC merchants, an extremely striking shift.
Not only that, but the rate of fraud attacks against gift cards specifically is significant compared to the fraud rate of the rest of non-GC merchants’ businesses — a whopping 17X the fraud rate of the non-gift card products.
This trend is even more stark in light of the fact that, as a proportion of non-GC merchants’ business, gift cards dropped by 25% (normalizing post-pandemic). So despite the fact that the sale of gift cards, generally speaking, is a less prominent part of the business for non-GC companies, compared to 2021, it’s far more targeted by fraudsters.
Protecting Gift Card Sales
Gift cards continue to be popular with consumers, and it makes good business sense for many companies to include them as a part of their offering. At the moment, though, it’s especially crucial that merchants who do not specialize in gift cards ensure that they’re taking appropriate steps to protect the sale of gift cards on their site.
While a lot of the fraud pressure used to be on merchants for whom gift cards are a significant part of their business, in 2022, the pressure is increasing for merchants who don’t specialize in gift cards and who may, on that basis, be less prepared or protected.
As we know, once fraudsters find a vulnerability, they’ll without a doubt exploit it. Now is the time for analysis to ensure you have a clear picture of gift card sale activity on your site, and that you have the measures in place to make sure your company isn’t at risk.
About Forter
Forter is the Trust Platform for digital commerce. We make accurate, instant assessments of trustworthiness across every step of the buying journey. Our ability to isolate fraud and protect consumers is why Nordstrom, Sephora, Instacart, Adobe, Priceline, and other leaders across industries have trusted us to process more than $500 billion in transactions. Click here to learn more.