Tackling Gift Card Fraud: Security Risks, Detection Methods, and Prevention Tools

Gift card companies are working on fraud prevention for customers

With the rapidly expanding popularity of the gift card industry, the threat to customer data is skyrocketing. It has become of paramount importance to gift card companies to be able to safeguard their customer’s data using fraud detection and prevention technology.

Why gift card data is a threat to companies & consumers:

With every interaction and transaction for customers between gift card companies, there is a plethora of sensitive data that is involved. The involvement of such sensitive data can impact companies and consumers in a few ways.

Security risks

If a company’s gift card data is compromised, it can lead to many risks, like unauthorized use of gift cards, fraudulent redemptions, and loss of customer trust. For customers, the theft of their data can lead to ethical concerns like identity theft or exploitation.

Fraud and scams

Gift card theft can take several forms, including the use of stolen credit cards to purchase gift cards and hackers creating fraudulent gift card codes. Scammers sometimes target consumers by fooling them into purchasing gift cards and mailing the codes as payment for fraudulent services or items.

Reputational damage & financial loss

If a brand experiences multiple known cases of fraud and weak security measures, it can lead to it having a bad reputation, causing the brand to suffer. It can lead to falling sales, loss of customer trust, and a long-term impact on profitability.

Plus, there would be large financial losses due to the scams and frauds that the data breaches would have caused to both companies and consumers.

Fraud detection methods

Due to these potential threats to gift card companies, companies use various methods to detect fraud and safeguard customer data.

Transaction monitoring and analysis

Systems that monitor transactions in real-time to detect suspicious activity, such as abnormally high-value purchases, multiple transactions from the same IP address, or frequent purchases of gift cards.

There are additional algorithms for predictive analysis in transactions that may indicate fraud, such as huge numbers of small-value gift card purchases or repeated efforts to redeem cards with incorrect codes.

Behavioural Analytics

Gift card companies track and conduct data analysis of client behavior patterns over time to create a baseline for typical activities. Any major deviation from this baseline, such as a rapid surge in gift card purchases or redemption, can raise red flags for fraud.

They look for symptoms of account takeover, such as changes in login location, device, or unusually big transactions just after logging in.

Blacklist & Whitelist Management

Companies keep and update a blacklist of known fake IP addresses, devices, and accounts. Transactions from these sources may be automatically prohibited or marked for manual inspection.

In contrast, they maintain a whitelist of trusted customers and partners. Transactions from these entities are less likely to be fraudulent, resulting in fewer false positives.

Geolocation Tracking

Use geolocation and IP address data to monitor where gift cards are purchased and redeemed. If a card purchased in one zone is quickly redeemed in a completely different location, it may indicate fraud.

Anti-fraud strategies

After detecting these threats in gift card companies’ computer systems, they often like to set up some fraud prevention methods based on predictive analysis to secure their networks.

Tokenisation & Encryption

Companies replace sensitive gift card information, such as card numbers and balances, with individual, randomly created tokens. This makes the actual data inaccessible to fraudsters, even if they intercept the transaction.

They can also encrypt all gift card data from the moment it enters the system until it reaches its final destination. This prohibits unauthorized access at any stage of the transaction process.

Money laundering use

Fraudsters can buy large volumes of gift cards using illicit funds and proceed to redeem or resell them, thus “laundering” the money through gift cards.

To prevent this, data analytics and machine learning algorithms analyze purchase patterns, redemption locations, and transaction frequencies. This helps identify anomalies that can be associated with the potential laundering of money.

Companies also use KYC (Know Your Customer) protocols as well as transaction monitoring to verify buyer identity and legitimacy. This further reduces the risk of laundering activities.

Automated Fraud Alerts & Notifications

Customers will be automatically notified when suspicious behavior is discovered on their gift card account, such as an unexpected redemption or a change in account information. For example, sending a real-time SMS notice to a consumer when their gift card is used from an unknown device or location allows them to report any unauthorized usage right away.

Digital payment security

Aside from encryption and multi-factor authentication, gift card companies can prevent fraud using secure payment gateways.

Use payment gateways that adhere to the Payment Card Industry Data Security Standard (PCI DSS). This assures that all payment processing adheres to the strictest security requirements.

Ensure that all third-party providers involved in digital payment processing use the same security measures as the organization. Regular audits and assessments of these vendors are conducted to ensure compliance and address any vulnerabilities.

Conclusion

These are some of the many ways that gift card companies are detecting and preventing potential fraud. While the risks may not be entirely mitigated, there are steps being taken to address and tackle such risks especially in such a rapidly developing tech space.