Breaking the Silence: How Gift Card Anonymity Fuels Crime

Since the advent of gift cards, gifting has become incredibly straightforward. We no longer have to wander store aisles guessing size, color, or style to find the perfect present for every celebration. Instead, we give an “IOU” of sorts—a dollar amount loaded onto a gift card that the recipient can exchange for a gift of choice. From restaurants and retailers to salons, streaming services, and more, gift cards are available for nearly every type of want or need. For those who desire even more flexibility, bank-issued gift cards, such as Visa or Mastercard gift cards, are usable wherever major debit or credit cards are accepted. Indeed, thanks to gift cards, treating family and friends on their special occasions has never been easier—unless the gift card’s value gets stolen before the recipient can use it.

Unfortunately, the same features that make gift cards appealing—convenience, accessibility, and flexibility—also attract fraudsters. Since gift cards are generally untraceable and anonymous forms of payment, criminals like to use them for money laundering schemes. Of course, scammers don’t buy the gift cards themselves; instead, they steal the value from cards that consumers legitimately purchase.

When I launched GiftCardGirlfriend.com over a decade ago—a site subsequently acquired by and merged into Giftcards.com—I initially set out to teach consumers how to transform gift cards into personalized gifts. From pairing bowling gift cards with quirky socks to crafting homemade bookmarks for bookstore gift cards, I shared hundreds of ideas to make each gift card feel more thoughtful.

However, this creative endeavor quickly evolved into a platform for addressing more practical consumer questions, such as how much money to put on a gift card or what to do with an unwanted gift card. In response, I wrote blog posts, created social media posts, did media interviews, and fielded thousands of individual inquiries. Over time, though, one panicked concern consistently came up more than any other:

“Help. My gift card doesn’t work.”

In the early days, many challenges with gift cards stemmed from a basic lack of understanding among consumers and cashiers about correctly processing gift card transactions, compounded by outdated point-of-sale (POS) systems not designed with gift cards in mind. However, in recent years, the nature of these issues has shifted dramatically, with an escalation in problems due to more sinister activities such as gift card fraud and scams.

According to the Federal Trade Commission (FTC), losses from gift card-related scams amounted to $217 million nationwide in 2023 alone, with $100 million reported so far this year. A 2022 study by AARP revealed that approximately 34% of U.S. adults have been targeted by scams demanding payment via gift cards, and 23% have given or received gift cards they found had a $0 balance upon use. With the gift card market predicted to reach $1.27 trillion by 2030, the potential for fraud is alarming and likely to increase unless we take proactive measures to stop it.

Understanding Gift Card Fraud

To address gift card fraud, we must first understand how these scams operate and why preventative efforts are lacking. There are two primary methods scammers use to drain funds from gift cards:

Card Tampering

Scammers steal stacks of gift cards from big retailers and carefully open the packaging to access the card numbers and PINs. They record the details, reseal the packaging to look untouched, and return the cards to the shelves. The scammers then monitor the card balances online. When a customer buys one of the cards and loads it with money, the scammers quickly sell the card details online, use the gift cards to purchase items for resale, or engage in other money laundering activities.

The full extent of gift card tampering is difficult to measure due to the anonymity of gift card transactions. These altered cards can change hands several times—bought as gifts, given to others, and possibly not used for a long while. The purchaser of a compromised card who gives it to someone else as a gift may never know the funds got stolen. The recipient may not try to use it immediately and could later assume they forgot they’d already used it—either way, the zero balance never gets reported. This anonymity and the often delayed usage make it nearly impossible to gauge how much money is lost this way or how widespread these scams are.

Victim-Assisted Fraud

Scammers use manipulative tactics to trick people into purchasing gift cards and sharing the numbers. Typically, the scammer poses as a representative from a trusted entity, such as a utility company, a tax office, or even law enforcement, claiming that immediate payment is required to resolve a critical issue. Victims, misled by the urgency and seeming legitimacy, purchase gift cards and provide the scammers with the card numbers and PINs. Believing they are settling debts or aiding loved ones, the victims unknowingly give the scammers access to the funds. Once in possession of the numbers, the scammers drain the cards, just as they do with balances stolen via card tampering.

However, this scam differs as it repeatedly targets the same victims. The scammers continue tricking their victims into purchasing more gift cards until the victims exhaust their resources or recognize the fraud.

Like card tampering, the losses from victim-assisted gift card fraud are likely higher than we know. Findings from a study by the AARP Fraud Watch Network and FINRA Investor Education Foundation concluded, “A lack of victim reporting (due to shame or perception that reporting will be futile) leads to an inability to see the true extent of the crimes, effectively lowering the perceived societal priority for fighting these crimes.”

Card tampering and victim-assisted ruses are just two examples of gift card scams. Although many variations exist, a commonality among the schemes is that scammers steal the value from gift cards as soon as they can access the numbers–they do not need to possess the physical plastic. Additionally, victims rarely (if ever) recover their funds because gift card transactions are anonymous, so there is no money trail to follow, and the stolen funds are laundered long before the loss is detected.

But why is this the case? In an age where loyalty programs, merchant apps, websites, POS systems, and smartphones capture and analyze almost every detail of our purchasing behaviors, it’s curious that gift card transactions remain a notable exception. This gap in data collection seems out of step with the otherwise comprehensive tracking that characterizes modern systems.

The Financial Impact of Anonymity

Historically, the gift card industry has prioritized the financial and reporting benefits derived from unspent balances when the gift card owner is unknown over the potential benefits of fraud prevention that could be achieved by linking card purchases to individual customers.

Ideally, gift card holders would spend every dollar loaded onto their cards, but that doesn’t always happen. Cardholders lose their gift cards, forget about them, or decide not to use them. Additionally, many people spend part of a gift card’s balance and discard the rest to avoid holding onto a card with a tiny remaining balance. This unspent value is known as breakage, whether it’s the original amount or a few leftover pennies.

Escheatment laws, which dictate how businesses handle the breakage, vary by state without an overarching federal standard. For instance, gift cards are not subject to escheat laws in Arizona. In Mississippi, businesses must report gift card funds that are still unused after five years. Missouri requires that companies report gift card breakage at 60% of their face value, but the state treasurer will reimburse consumers the total face value upon claim. Similar variations in laws exist across several other states, determining whether gift card issuers can retain unused funds.

The applicable escheatment rules typically depend on the gift card owner’s last known address. However, if the address of the gift card owner (neither the purchaser nor the recipient if the card was given as a gift) is known, the laws of the state where the issuing company is incorporated apply. Under these circumstances, the unspent funds are attributed to the issuing company since there is no linked customer data.

To streamline reporting and maximize the financial benefits of breakage, many merchants base their gift card operations in states with the most favorable escheatment laws and bypass collecting readily available customer data at the point of sale, such as requiring a driver’s license or loyalty card to purchase a gift card.

In the banking industry, Know Your Customer (KYC) regulations are essential for customer identification, helping prevent fraud, money laundering, and other financial crimes. Applying similar KYC principles to the sale of gift cards—while tailoring the technology to accommodate the speed merchants require—could significantly reduce fraud rates. This approach would also increase the likelihood of reimbursement when a gift card is recovered and provide a solid foundation for legal action when necessary.

However, while financially beneficial to merchants, the lack of traceable connections also renders gift cards convenient tools for money laundering schemes and complicates law enforcement efforts to intervene.

Legal and Operational Challenges

Caleb Carroll, an investigative Specialist focusing on financial analysis for International Justice Mission, highlights the impact:

“One of the things law enforcement must determine when any crime occurs is where it happened or who has legal responsibility—what agency and courts are lawfully able to handle the case. This legal concept is called jurisdiction. With crime using gift cards, it is particularly challenging to establish jurisdiction and, therefore, to investigate and aid if we don’t know who the victim is and where the incident occurs. Without critical information to establish jurisdiction, police can’t legally investigate even when it’s clear a crime involving gift cards has been committed. Bottom line is that criminals don’t have any rules to play by.”

In general, the absence of a money trail prevents law enforcement from prosecuting offenders or helping to recover funds. Additionally, customer service representatives at various businesses—including the store that sold the gift card, the merchant listed on the card, and potentially third-party providers—lack the necessary customer information to deactivate cards, check balances, authenticate transactions, or verify claims about stolen gift card balances.

The situation is particularly dire with victim-assisted fraud, where losses can be substantial, often involving not just one but multiple gift cards, potentially totaling hundreds or even thousands of dollars, depending on how often the victim complied with the scammer’s instructions. When victims realize they’ve been deceived into sharing gift card numbers with scammers, their attempts to cancel the transactions and get a refund are typically met with a disheartening response such as, “It’s too late,” or “We can’t indemnify every person who falls for a scam.”

Frustration, lack of support, and a sense of futility often lead consumers to abandon efforts to obtain reimbursement or report a crime. Sometimes, they escalate their grievances to social media or news outlets in desperate attempts to find a resolution. Ultimately, however, there is no clear path to right the wrongs for these victims.

It’s time to end the anonymity that has long enabled fraudulent activities within the gift card industry to benefit consumers who legitimately use gift cards.

Linking gift card transactions to consumer identities can significantly enhance fraud management and prevention. Here’s how eliminating anonymity could potentially address card tampering scams:

• Immediate Identity Verification: Associating cards with customer identities allows issuers to swiftly verify the purchaser, eliminating the need for consumers to prove ownership in case of disputes. Efficient implementation would require collecting KYC-type data while maintaining the quick pace of merchant transactions and safeguarding against identity theft.
• Reduced Market for Stolen Gift Card Numbers: Associating each gift card with its original purchaser provides a clear money trail that can be investigated if issues arise. This transparency helps reduce the illicit market by deterring misuse without impeding the legitimate gifting and use of the cards.
• Enhanced Data for Prevention: This approach not only aids in detecting and preventing individual instances of fraud but also provides critical data that retailers and law enforcement can use to analyze broader patterns. For example, data collected might reveal that certain gift card brands are more frequently involved in scams, prompting retailers to reconsider stocking these cards or implementing additional security measures for the most-wanted brands. Moreover, recurring instances of altered cards at specific locations or registers could initiate investigations that uncover broader criminal activities and pinpoint security lapses. This valuable information could lead to more robust security measures, the identification of consistent fraud patterns, targeted employee training, and refined store policies, making the retail environment safer for consumers and businesses.
• Empowered Law Enforcement: Establishing a clear link between a gift card and its purchaser allows law enforcement to assert jurisdiction, investigate the money trail, and prosecute more effectively.

Linking gift card transactions to consumer identities can also play a crucial role in mitigating victim-assisted fraud. In addition to the benefits listed above, other improvements include the following:

• Enhanced Transaction Oversight: By associating gift cards with customer identities, retailers can more easily monitor suspicious activities, such as purchasing unusually large numbers of gift cards. This oversight can trigger alerts that prompt further verification or even prevent the transaction if it seems highly irregular. Some merchants have transaction monitoring in place today.  Ideally, such monitoring and intervention capabilities should be required across all merchants and connected across retailers and banks.
• Empowered Cashiers and Consumers: When systems flag unusual transactions, cashiers can talk to customers about potential scams. As customers are regularly asked to provide identification for gift card purchases, they’ll also become more aware of common scam tactics.
• Prevention Through Education: If gift card purchases are linked to personal identities, educational efforts about fraud prevention can be more personalized and targeted. For example, if a customer frequently purchases large numbers of gift cards, retailers can provide specific advice and warnings about common scams.
• Cause to Pause: If scammers know that their targets must present identification or other KYC-connected information to buy gift cards, they may try to circumvent the requirement with the use of fake IDs or instructions on how to skip the identification process altogether. The additional steps create a barrier to fraud and provide potential victims with critical time to assess and potentially question suspicious directives.
• Collaboration:Merchants and the banking industry already share data to combat various types of fraud and financial crimes. Gift card fraud presents an ideal use case for developing a collaborative model between banks and merchants when debit and credit cards are used to purchase gift cards. By working together, they can more effectively track abnormal activity and potentially identify and dismantle criminal rings involved in gift card scams.

This strategic approach not only deters fraudsters but also builds a safety net around consumers, reinforcing their confidence in the security of their transactions.

While fraudsters may attempt to bypass these measures using fake credentials, adding a verification step introduces significant hurdles for unauthorized activities. Customers familiar with providing identification for sensitive transactions, such as purchasing cold medicine, are likely to appreciate these security enhancements, understanding they help ensure their gift cards function correctly and provide a means of recourse if problems arise.

Important Note: Linking a gift card to a customer does not restrict its use by others; gift cards are meant to be gifted. The connection simply adds tracking to gift card transactions, enhancing overall security and providing recovery options without limiting the card’s intended functionality.

Better than Breakage

While merchants may be concerned that requiring identification for gift card purchases could create friction and increased processing times at the point of sale and deter customers, educating the public about the risks associated with anonymous transactions is crucial. When consumers understand that untracked purchases can facilitate fraud and serious crimes like human trafficking, elder exploitation, money laundering, and terrorism, they are more likely to appreciate and support the need for ID verification. Over time, the advantages of reduced fraud and enhanced customer satisfaction will likely far outweigh any initial inconveniences.

Merchants may also see this change as a reduction in breakage revenue. However, the long-term benefits of enhanced customer relationships can significantly outweigh these initial losses. By shifting the focus from merely selling gift cards to actively encouraging their redemption, businesses can open new revenue avenues that are better for their bottom line.

Depending on the source, studies report that anywhere from 58 to 79% of consumers spend more than the balance on their gift cards, an average of 38% more than the card’s initial value. However, I believe the actual excess spending values are much higher. While reviewing the Ulta gift card experience for my Gift Card Certification program, I analyzed the profound impact of gift cards on consumer behavior and spending.

Starting with $100 in gift cards, I ultimately spent more than $580 over a few visits, but the benefit to the store (and me) goes deeper than dollars. Within weeks, I visited the store, scheduled a service appointment for a makeup consultation and later for a hair service, purchased recommended cosmetics, ordered an out-of-stock eyeliner from the Ulta.com website, received free samples at checkout, and used my Ulta Beauty Rewards via the app. That’s seven customer interactions, not including the actual appointments, follow-up communication, and other general marketing efforts such as a newsletter, turning that initial monetary transaction into a lasting consumer relationship and brand loyalty.

While Ulta could have potentially retained the $100 from the initial gift card purchase had I never used the cards, each engagement increased the store’s immediate revenue and enhanced my overall customer experience, encouraging repeat visits and further spending. (I have another hair appointment scheduled this month.)

However, many merchants miss an opportunity when they participate passively in gift card redemption. If a company actively tracks gift card purchases and integrates them into its app for easy access, safekeeping, and data collection, it could offer additional incentives and perks for redemption — and it should. Customers who buy gift cards are investing in the brand, entrusting their money with the expectation that the store will deliver future goods and services. By treating these customers as valued members, the business not only enhances the customer experience but also benefits itself. Knowing that redeeming a gift card leads to exclusive rewards and special treatment would make me even more inclined to give that gift card to others, confident they’ll feel similarly appreciated.

The potential benefits of redemption cannot be overstated.

When merchants start viewing gift cards not just as products to sell (that might not get used) but as tools to build lasting relationships, the impact on the retail landscape could be significant. Gift cards have consistently been the most requested gift for over a decade. By shifting from anonymity to transparency in gift card transactions, businesses can increase revenue, enhance customer loyalty, and improve the overall shopping experience. Implementing measures to combat gift card fraud may introduce some initial friction, but the long-term benefits—creating a safer and more engaging customer experience—outweigh these challenges. This change in approach could fundamentally alter how businesses engage with their customers, turning every gift card transaction into an opportunity for deeper connections and ongoing engagement and a proactive step against fraud and scams, further securing the trust and safety of the shopping experience.

Lawmakers and Misdirected Efforts

Unlike credit card and debit card fraud, gift card-related fraud remains largely unprotected by the regulations safeguarding other banking transaction types. As lawmakers become increasingly aware of gift card fraud issues, their legislative responses have intensified. However, the focus of these measures often misses the mark. Recent legislation in states like New York and Maryland exemplifies well-intentioned but misdirected efforts to combat gift card scams.

New York’s Approach: New York mandated that stores display Gift Card Scam warnings where gift cards are sold. While this aims to educate consumers about the risks of victim-assisted fraud, the responsibility falls heavily on store personnel and customers to read and understand the messages. Cashiers must perform their regular duties, monitor gift card displays, coach customers they think might be buying gift cards for a scam, and check gift cards for card tampering—a challenging feat in busy retail environments.

Maryland’s Legislation: Maryland has taken a different approach by requiring gift card issuers to utilize tamper-resistant packaging. This measure seeks to prevent physical tampering with cards before purchase. While this could reduce incidents of card tampering for a while, it still places a significant burden on both cashiers and customers to verify the integrity of the packaging. Additionally, it’s essential to consider that scammers are adept at modifying packaging in subtle ways that often go unnoticed, and they may quickly develop new methods to circumvent these protections.

Rather than continuing with piecemeal legislation that targets only specific aspects of gift card fraud without addressing the root cause, it’s time for lawmakers to adopt a holistic approach. From varying state laws to inadequate protections, we need end-to-end improvements.

If the gift card industry doesn’t voluntarily make changes, lawmakers must be clear about what requirements to enforce. New card solutions, apps, and other technologies exist (or are in development) that have the potential to reduce fraud and enhance the consumer experience significantly. However, businesses have yet to adopt them widely (and sometimes are even resistant) because there’s no pressing need to change.

Until that happens, in a world dominated by automation, data, and artificial intelligence, we will continue to burden customers and cashiers with manually combating sophisticated fraud at the point of sale, and then unfairly hold them accountable when crafty scammers manipulate vulnerable people into buying loads of gift cards, or when gift card balances are gone before rightful owners get a chance to use them.

Join the Conversation

If you’re interested in exploring solutions or engaging in a broader conversation about making gift card transactions safer and more transparent—whether through policy changes, innovative technology, redesigned gift cards, or enhanced security measures—please sign up below. By working together, we can find effective ways to prevent the misuse of gift cards and protect the most vulnerable members of society.

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About the Author

Shelley Hunter is the leading consumer voice in the gift card industry, with over 15 years dedicated to helping people navigate the complexities of gift cards. As the founder of GiftCardGirlfriend.com (later acquired by and merged into Giftcards.com), she initially focused on demonstrating how to personalize gift cards. She quickly shifted, however, to addressing critical consumer issues like fraud and redemption challenges in response to customer demand. Now, as the founder of GiftCardReform.com and GiftCardsYouCanTrust.com, Shelley advocates for consumers and works with merchants to create safer, more transparent, positive gift card experiences.

References:

• Clutch: Four Shocking Stats about Gift Cards and why you Should Care: A study by the Blackhawk Network
• Capital One Gift Card Statistics
• Chain Store Age: Study: Men emerge as primary gift card purchasers in the U.S.
• Faire: More cash flow, happier customers: Why gift cards are a win-win for retail shops
• Tillo: The Psychology Behind Spending Gift Cards Over Cash
• Blackhawk Network: Consumer Gift Card State of the Union
• The Straw Group: Gift Card Trends: Consumer Preferences & Behaviors
• ProPublica: Chinese Organized Crime’s Latest U.S. Target: Gift Cards