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Retail Blog

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Preventing Gift Card Fraud in Retail Operations

Gift cards are popular presents among friends and family. When someone isn’t certain what to buy a friend or relative for their birthday or during the holidays, a gift card from their favorite retailer or web store can be a great choice. For retailers, a gift card gives back to their retail operations in many ways. They have already received the profit from the gift of the card. It’s also a driver to bring cardholders into their retail store to purchase merchandise which secures future sales. If the card is lost (which happens more often than you might think), it’s a net profit for the store because they’ve received the profit from the gift card sale without exchanging it for physical merchandise. This has produced a growing and thriving market in gift cards for retailers of all sorts of products.

However, as gift cards have grown in popularity, so have incidents of fraud utilizing gift cards. While retailers are correct in seeing gift cards as a sales opportunity, they are also seeing and reporting more incidents of fraud involving gift cards.

How are the losses happening?

Retailers were essentially short-sighted at first. Many retailers were quick to bring gift cards into their retail operations but slow to adapt their point-of-sale systems to the specifics of gift cards and failed to develop adequate surveillance and business intelligence reporting to help detect abuse or fraud.

Gift card fraud is like any other form of criminal behavior. There are several methods that thieves, whether they are outside elements or employees committing an inside job, are using to game the system via gift card fraud. Some methods involve gaining access to a stolen or otherwise fraudulent gift card while other techniques use credit card fraud and check fraud to treat the card itself like merchandise that can later be sold online. Regardless of the method involved, real-world incidents have proven that while gift cards might be looked upon as an afterthought, the consequences of misuse or abuse of gift cards can cost a retailer thousands of dollars.

Deterring Fraud During Point-of-Sale Transactions

Frauds or schemes involving gift cards almost always have to involve a point-of-sale transaction. Understanding how your sales system issues, redeems and cashes cards is key, as well as understanding when and how the card is activated in your point-of-sale system. By examining these key elements, you can better assess the risks involving gift card fraud at your registers.

An Inside Job

Watch out for zero balance complaints. This can be a key indicator for a retailer for finding out that their worst offenders when it comes to gift card fraud are their employees.

If multiple customers complain that they have received gift cards from your retail store with a zero balance, it is highly possible that you have employees replacing customer gift cards with gift cards that have zero balances at the register. Make sure used gift cards are discarded properly.

Identifying Card Activation

There are a few known schemes involving the activation of gift cards. Many retailers’ point-of-sale system will actually “activate” a card at the moment it is scanned as an item for sale, prior to the transaction being finalized and complete. This makes the retailer vulnerable to the laundering of a gift card as well as associated crimes involving credit card or check fraud. Other areas of risk involve the post voiding of a gift card or shutting down the register in the middle of a transaction—after a gift card is activated. These methods are usually used by employees to steal from a retailer. 

Card Display and Handling

How your gift cards are displayed can also make your retail operation vulnerable to fraud. If cards are displayed in unorganized fashion, poorly tracked by inventory control systems or surveillance, or otherwise improperly maintained, it makes it easier for criminals to gain access to numerous blank cards and potentially duplicate them for fraudulent transactions.

Protecting the Card

The first thing to do is protect the card itself. A competent gift card provider should be able to instruct you and your employees on their security features that protect their cards. These methods of protection can include pin numbers protected by scratch-off labels, encrypted magnetic strips to prevent card duplication, or the application of special security chips that can’t be duplicated or otherwise used in fraudulent ways. Consult your gift card provider to determine which security features are accessible via your retail operation’s gift cards.

Gift Cards frauds are becoming dramatically more common in today's retail environment.  Understanding your gift card program, developing proper security measures with the card and your point-of-sale system, and auditing your program for faults will better protect your retail operation from the risk of fraud. Decreasing the opportunities and likelihood of fraudulent incidents will then allow you to reap the benefits of a quality gift card program.

Implementing a quality video surveillance package with video analytics from Envysion will help identify potentially fraudulent point-of-sale transactions and help protect your retail operation from gift card frauds.

About the Author — Christie Acker

Christie is responsible for helping Envysion’s enterprise clients in the retail and restaurant spaces understand the best ways to use video-based business intelligence to deliver on their brand promise and drive profitability. With over 15 years experience in building and supporting world-class sales organizations, Christie is an accomplished and tenured leader in the enterprise software sales market. An avid traveler, she has visited over 60 countries and uses her diverse experiences to help understand clients' needs to design and implement solutions to help achieve their goals. Christie holds a Bachelors degree in Economics from Vanderbilt University.

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