Four ways to tackle fraud as an industry


Wherever there is money, there will be fraud. It’s a sad fact of modern life. Gift card fraud in particular is on the rise and no digital or physical reseller is exempt from needing to face this problem head on.

Reports have estimated the value of the global gift card market to be as high as $778 billion – an increase in part attributed to the effects of the COVID-19 pandemic, where millions of new buyers realised the ease of sending a gift card either to help financially during tough times, or as birthday/holiday gifts during months of separation. But where gift card sales go up, so does the reported fraudulent activity.

Previous vehicles of fraud such as credit cards are no longer the easy targets they once were. Increased security measures such as two-factor authentication and biometrics have rendered the act of stealing money and identities that much harder. As a ‘replacement’, gift cards are now the hard-to-protect method of payment.

Ultimately, most gift cards are anonymous, difficult to trace, and easy to convert into cash. Regulations only apply to higher value cards in certain countries that are bought/sold under specific circumstances.

As noted by Chargeback Gurus, there are multiple types of gift card fraud. The risk and consequences of each type increases dependent on whether the card in question is on an open-loop or closed-loop system.

Within my own organisation, we are seeing an uplift in the number of fraudulent orders. We’ve experienced an upward trend of visits from social media sites where the person placing the order has fallen victim to a scam. It seems the majority of these orders are made by younger generations who have been fooled into paying a ‘ransom’ in exchange for the reclamation of explicit photos originally sent in good faith.

As a digital gift card provider based in Switzerland, I can only share the data from our local audience. It is clear to me that a key problem attributed to this uptick of crime is a national lack of understanding around the workings of a gift card.

We have 8+ common methods of payment in Switzerland. Gift cards are yet to become a ‘mainstream’ option. Consumers here haven’t therefore made the connection that gift cards are, in fact, money. We see instances of codes being given to friends/family/strangers without the understanding that a redemption against that code irretrievably spends the balance.

98% of gift card fraud in Switzerland is coming in from surrounding European countries. I feel that this is likely part of the reason that so many Swiss citizens are being caught out. Most fraud within the country comes from stolen cards, so locals are perhaps less wary of cyber scam techniques.

The majority of victims we’ve witnessed via the Offerz platform will sit in the 20-30 age group, with the value ranging between 50 and 500 CHF. Nationally we see a lot of fraud committed against the 50+ age group – especially as many scams pose as trusted brands in order to gain personal data. Swiss Post, for example, have a full list of known fraud attempts that can be checked on their website.

Tackling the problem

At Offerz, there are a number of actions we’re now taking as standard in response to the uplift of gift card fraud in Switzerland.

We monitor the source of every order placed. We can easily see those that stand out – in-app links from social media platforms such as Snapchat, Instagram, and Twitter. 8 out of 10 requests from these platforms will be determined by our internal team as activity related to fraud.

Sadly, many of these instances are likely to be younger users who are purchasing a gift card as a ransom payment, usually in exchange for the release of illicit photos they were lured into sending. These users aren’t guilty of the fraud itself, but simply the victims caught in the middle.

We recognise that we need to help and prevent these cases wherever we can by automatically cross-referencing several parameters, to determine the legitimacy of any transaction. In addition to the traffic source of the visitor, the address of the order, previous order history, and the payment method will be assessed. If any of these factors are considered suspicious, our Customer Service team steps in to manually perform further checks.

Often, the team will reach out to the person placing the order. They’ll confirm the identity of the user and try to find out what has happened. Unfortunately, it is only a small percentage that will admit they need help to resolve the situation.

As a result of this process, we won’t always release the order but will issue an immediate refund. Although we cannot enforce it, we always strongly advise victims to go to the police.

How the industry should respond

In my view, there are a number of ways that our industry can work to prevent and manage fraud. I’ve outlined four approaches below that I believe would help us to move the dial both locally and internationally.

1) Build alliances with foreign police

Much of the fraud we see in Switzerland is incoming from other countries around Europe. An effort to acquaint our industry with international police forces where we can easily report cross-country fraud attempts would help to track the extent of the problem and pick out trends.

Currently, we can only encourage our users to report their experience to the Swiss police, who are unable to prosecute perpetrators without the connection of the offender’s local law enforcement. If there was a central register for all countries, we as data handlers would be able to file a report regardless of whether the victim does, therefore elevating the report rate to a more accurate reflection.

2) Build a network of media outlet relationships

Communication is key. Awareness of new and continuous scams should be continually promoted across the full media estate. Whilst fraud is not a new problem, it should be easier for our industry to work with international, national and local outlets to efficiently spread the message.

3) Work directly with the social media giants

So many of the instances we see on the Offerz website are incoming from the big social media platforms. The onus is currently on us to check suspected fraudulent activity, but what if the social companies could do more?

Sharing more awareness and providing regular ads to alert users to the ins and outs of fraud risk and how to manage attempts could be easily constructed.

Plus, if we detect fraudulent activity, it should be easier for us to work with the platforms to identify and prosecute the criminal accounts being used to target vulnerable users.

4) Educate the customers

Such a huge part of successful fraud attacks can be attributed to the lack of awareness and education of our audiences. From sub-par understanding of how gift cards work, to what to do in varying real-life scenarios, our customers could be part of the solution.

Across the industry, we work with all demographics, and we should be doing more to ultimately protect end-users. Industry-led campaigns with input from multiple companies could be pulled together to spread a wider message. Work could be done with national education institutions to teach about the recognition, mitigation, and consequences of fraud attacks.

Closing sentiments

Gift card fraud is a subject that will be on our industry agenda for some time yet. It cannot be resolved overnight, and there are many nuances to consider and overcome. Small but steady steps need to be taken on a regular basis, and these should be shared and implemented across borders wherever possible.

The journey towards customer awareness is only just beginning. There are hundreds of articles available across the internet for those who are looking – but we need to amplify this important message towards those who aren’t actively reading these materials.

The US Federal Trade Commission has some great consumer advice for the act of safely buying and using gift cards. The key is to remember that gift cards are for gifts, not for payments – if anyone ever asks to be paid in gift cards, this should be a huge red flag. The FTC recommend sticking to known, trusted stores and to carefully check physical cards where possible for any signs of tampering. Most importantly, they advise keeping receipts and card ID numbers to support the filing of reports for lost or stolen gift cards.

In time, we will be able to make gift card fraud as difficult as it now is for the average person to hijack a credit card. But I do truly believe this can only happen if we work together as an industry, rather than in silos. Let’s fight this fight as one!


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