Key Takeaway: With gift card fraud costing restaurants millions each year, implementing robust security measures is essential for maintaining guest engagement and protecting revenue.
The popularity of gift cards continues to soar, offering convenience and flexibility to givers and recipients alike. However, this surge in popularity has been accompanied by a rise in fraud. In 2022 alone, nearly 49,000 instances of gift-card fraud were reported, resulting in more than $228 million worth of losses.
Gift cards are attractive targets for scammers for several reasons. Unlike credit cards or bank accounts, gift cards typically have fewer protections and authentication barriers, making them easier to exploit. Once a gift card is used and the funds are gone, the fraud is much harder to reverse or trace.
While committing fraud using individual gift card values may seem hardly worth the effort, fraudsters operating at scale can potentially siphon millions of gift card dollars from unsuspecting businesses and consumers. The relative ease of monetizing stolen gift cards, combined with the lower chances of detection or prosecution compared to other forms of financial fraud, has made this an increasingly prevalent issue in the restaurant industry.
As more diners opt for the convenience of gift cards, purchased for personal use or for others, restaurants face the challenge of balancing customer satisfaction with security. Understanding the appeal of gift cards to fraudsters is the first step in developing effective strategies to protect your business and your guests.
In this article, we’ll examine physical and digital vulnerabilities and highlight how you can protect guest information and maintain the integrity of your gift card program.
As restaurant operators display physical gift cards for easy purchase, they inadvertently provide a playground for those with malicious intent. One of the most prevalent and concerning methods of physical gift card fraud involves package tampering.
Bad actors use tools like a razor blade to carefully slice open card carriers, collect hidden information, and reseal the packages. Back on the rack, the compromised cards wait for unsuspecting customers to purchase and activate them. Once activated, a fraudster can quickly drain a gift card’s value, leaving the legitimate recipient with a worthless piece of plastic.
The simplest way to combat this type of fraud is to keep physical gift cards out of public reach, but you can get more sophisticated if you want your guests to have a more hands-on shopping experience. Some operators use card carriers designed to show obvious signs of tampering, such as those made of material that fractures when cut or those using one-time adhesives that prevent resealing. Tamper-evident labeling, such as scratch-off surfaces covering gift card ID numbers, has also become a common practice.
Behind the scenes, operators can use inventory management systems that track each gift card’s journey from arrival at the store to purchase. These systems can flag unusual patterns, such as cards being repeatedly handled without purchase and pre-purchase balance checks. Some retailers have installed security cameras near gift card displays to deter tampering attempts.
Furthermore, cashier training has evolved to include specific protocols for gift card transactions. Employees can be taught to inspect cards for signs of tampering before activation and to be alert for unusually large gift card purchases, which could indicate potential fraud or money laundering attempts.
In recognition of the growing threat of gift card fraud, some jurisdictions are taking legislative action to protect consumers. For instance, the State of New York passed legislation in 2022 requiring businesses that sell gift cards to educate consumers about common fraud tactics.
These efforts––combining operator vigilance, technological solutions, and consumer awareness––create a comprehensive defense against physical gift card fraud. By addressing vulnerabilities throughout the gift card lifecycle and empowering consumers with knowledge, the industry is taking important steps to safeguard the integrity of gift card programs and protect customers from financial harm.
As gift cards have moved into the digital realm, so have the methods employed by fraudsters. One of the most prevalent forms of digital gift card fraud involves account takeover attacks.
Cybercriminals gain unauthorized access to gift card accounts through various means, such as deploying bots to rapidly test thousands of card numbers and PIN combinations. Once successful, these attackers can quickly drain card balances or resell information on illicit marketplaces.
Another tactic involves hacking into user accounts and exploiting auto-load features, allowing criminals to siphon funds regularly. Some fraudsters employ click farms or sweatshops to continually check gift card balances and redeem them as soon as they’re loaded, making it difficult for legitimate users to detect the theft until nothing can be done about it.
Cybercriminals don’t just target gift cards directly; they also exploit restaurant loyalty programs. By gaining unauthorized access to customer accounts, attackers can redeem accumulated points for gift cards, which are then easily converted to cash or resold.
Many consumers are less vigilant about monitoring their loyalty points compared to their credit card statements, giving attackers a wider window of opportunity. This vulnerability underscores the importance of securing all aspects of a restaurant’s digital ecosystem, including loyalty programs, online ordering accounts, and payment systems.
Beyond these technical exploits, fraudsters also employ more direct, deceptive tactics to compromise gift card security. Phishing and social engineering techniques have emerged as significant threats in this space.
These methods rely on manipulating psychological vulnerabilities rather than exploiting technological loopholes. Scammers may target restaurant customers or employees, posing as managers, corporate representatives, or IT support staff. They might claim there’s an urgent issue with the gift card system that requires immediate action.
These fraudsters then attempt to obtain sensitive gift card information or manipulate employees into performing unauthorized actions. This scheme exploits the difficulty in tracing or reversing gift card transactions and is particularly effective because it creates a false sense of urgency, often causing victims to act before they’ve had time to think critically about the situation.
While social engineering tactics target individuals directly, cybercriminals have also devised methods to exploit the financial systems supporting gift card transactions. One such strategy involves fraudulent purchases and subsequent chargebacks, creating a two-pronged assault on restaurant finances.
In this scenario, criminals may use stolen credit card information to buy gift cards online from restaurant websites, quickly depleting their value or reselling them on secondary markets. When the legitimate cardholder discovers unauthorized charges and disputes them with their bank, they often initiate a chargeback, requiring the restaurant to refund the purchase amount. This type of fraud is particularly damaging as it results in a double loss for the restaurant: the value of the gift cards and the chargeback fees imposed by credit card companies.
To combat sophisticated digital threats, operators must employ equally advanced security measures. Implementing robust encryption protocols, such as the Advanced Encryption Standard (AES), for all gift card data is essential. This level of encryption transforms sensitive information into complex code that’s extremely difficult for unauthorized parties to decipher.
Secure file transfer protocols (SFTP) should also be used for financial transactions related to gift cards, ensuring data remains protected during transmission. Two-factor authentication (2FA) for account access adds an extra layer of security, requiring users to provide a second form of verification beyond a password.
Compliance with the Payment Card Industry Data Security Standard (PCI DSS) is another fundamental necessity for handling gift card transactions. These standards provide a comprehensive framework for maintaining a secure network, protecting cardholder data, and regularly updating security measures.
In addition to these standard operating procedures to protect guest data, gift card issuers and restaurant operators are implementing innovative strategies, such as avoiding sequential numbers for gift cards. By using non-sequential, randomly generated numbers, fraudsters have a harder time guessing valid card numbers. Many companies are also incorporating PINs as an extra layer of security, especially for high-value cards or those used in digital wallets.
Advanced monitoring systems also play a role in detecting suspicious activity. These systems analyze gift card redemption patterns, flagging unusual behavior such as multiple high-value redemptions in quick succession or redemptions from unexpected geographic locations. This proactive approach often allows businesses to prevent gift card fraud before it occurs.
Looking to the future, blockchain technology shows significant promise in revolutionizing gift card security. By leveraging blockchain's inherent qualities of transparency and immutability, the gift card ecosystem could see significant enhancements in security, traceability, and fraud prevention. While still in its early stages, blockchain integration has the potential to mitigate counterfeiting and unauthorized transactions by creating an unalterable record of each card’s history.
Paytronix has established itself as an industry leader in online ordering, loyalty, and gift card solutions by integrating cutting-edge security measures into its platform. At the heart of Paytronix’s approach is a steadfast commitment to protecting customer information in every interaction.
Adherence to industry standards and best practices is the cornerstone of our security strategy. We rigorously follow PCI DSS compliance requirements, ensuring the highest standards for secure payment processing and data storage.
Through state-of-the-art encryption and secure data handling practices, Paytronix keeps sensitive information confidential from the moment a customer enters personal information to the final transaction. And our 24/7 commitment to data privacy and security continually evolves to address new and emerging threats.
As gift card fraud continues to evolve in sophistication and scale, operators must remain vigilant. Understanding the risks associated with both physical and digital gift card fraud is the first step in developing effective prevention strategies.
For more information on how Paytronix can help secure your gift card program for maximum guest engagement and peace of mind, contact us today for a personalized demo. Together, we can build a more secure future for gift cards.