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Loss Prevention Best Practices Preventing Gift Card Fraud Protecting your program from loss and liability Gift Cards have become the perfect gift How are the losses occurring? protecting the card. When it comes to choice for many consumers over the protecting the card, retailers should past years, and for retailers a successful As retailers were quick to bring gift make certain that they do not overlook source of increased revenue. According cards to market, many were in fact slow the security of the card itself in order to to industry analysts, the 2006 holiday to provide certain protection for the gift reduce the overall costs per gift card. season alone should bring almost $25 cards themselves, proper controls at the billion in sales with projected annual point of sale and the development of Deterring Fraud at the Point of sales through 2007 to possibly top the adequate reporting of gift card activity. Sale $100 billion mark. It is obvious from These failures opened up gift cards to these predictions that both retailers and fraud, both from “customers” as well as Gift cards are a form of tender and consumers have accepted gift cards as a dishonest associates. when it comes to tender fraud, the point great choice in the retail marketplace. of sale is often where it occurs. There have been several methods that Understanding how your point of sale Another group who has seen gift cards thieves, both internally and externally, system issues, redeems, cashes and as a popular choice is the retail continue to use to commit fraud. Some activates gift cards will help you to fraudster. In similar fashion to other methods are designed to actually obtain prevent fraud. tenders, certain criminal elements have a fraudulent gift card or the gift card taken the gift card and developed a account numbers, while others are used Card Activation variety of scams and methods of to obtain the gift card as the “stolen stealing the cards and their values from merchandise” from the retailer. Once At what point the card is activated in the retailer. As gift cards have been the cards are in the possession of the your POS system can determine your rolled out retailer after retailer, more thief, they can be redeemed, cashed or vulnerability to gift card fraud. Many incidents of fraud and loss have been sold at on-line auctions or through other retailers allow their cards to activate reported. stolen good channels. Regardless of the once scanned as an item for sale, before methods used, actual incidents have the transaction has been tendered and Gift Card fraud has been reported to shown that thousands of dollars can be completed. Although a popular point of have occurred in all types of retailers. stolen easily through gift card fraud. activation, this opens the retailer up to From large department and discount some forms of fraud (See How They Do stores to specialty retailers and Protecting the Card It on page 2). Other areas of system restaurants. Incidents have shown that vulnerability include the possible post gift card fraud may not be retailer or The first point of protection should be voiding of a gift card, or shutting down market specific, but more focused on the card itself. Stored-Value Card the register in the middle of a the card “value” and the lack of controls providers are consantly developing new transaction after a gift card is activated. in place. The retailers it will affect the security features to better protect the Dishonest associates have been known least are those that build strong card. Tamper-resistant packages, to use these methods to steal activated programs to protect their gift cards. encrypted magnetic strips and scratch- cards from their employer. Review your off codes and numbers are all means of point of sale processes for card www.lpinnovations.com LP Innovations is the leader in loss prevention outsource services and solutions, providing retailers with programs designed to reduce loss, protect profitability and increase margin. Working with retailers of all segments and sizes, LP Innovations can assist you in developing a program to flex with your budget, mold to your coporate culture and drive results to increase the profitability of your retail locations. www.lpinnovations.com activation and look for different ways that you can maintain widely seen methods. Not until the customer uses the card card activation while removing the transaction from the system. do you find out that there is a zero balance and then you have a customer relations problem, which in itself can be Card Display and Handling frustrating for both customer and retailer. Cloning cards, although rarer than many may think, has caused Fraud Can Be Prevented some retailers considerable loss. Keeping blank gift cards in an area where they are more visible can help deter theft. Have As many in the loss prevention and retail industry are associates review card stocks for missing sections, which can be working through myths and facts surrounding gift card an indicator of blank card theft. Utilizing tamper-resistant fraud, the overall costs of fraud are still an unknown. Even packaging will also deter theives from stealing blank cards for though more incidents are being reported, the likelihood of a cloning theft (it will be difficult for the thief to return the blank retailer falling victim is more dependent upon what is done card without knowing it has been tampered). to prevent fraud. Understanding your gift card program, developing proper safeguards with the card and your POS The Inside Factor System, and auditing your program for compliance and concerns will better protect your program from various Many retailers are finding out that their biggest gift card points of fraud. Decreasing the opportunties and likelihood fraudsters are their associates. Switching customer’s newly of incidents will then allow you to reap the benefits of a purchased gift cards with zero balance cards and using the good gift card program. customer card to purchase merchandise is one of the most Register Shut Down: An employee rings purchases over the Internet, catalog How They Do It? up a gift card and activates it at the point or in case one must manually key the of purchase. Before tendering the card at point of sale, the same uses transaction they unplug or conduct a hard can be completed fraudulently. An The following are known methods of shut down of the register. Did the gift employee can write down the gift card fraud as reported within the card activate? Did the transaction get numbers (or provide someone with retail industry. recorded? Some retailers have lost the numbers) and then conduct thousands to this method before realizing continual balance inquiries (via The Switch: An employee receives a what had occurred. telephone or web) until it is learned gift card as payment from a customer. that the card has been activated with The card after purchase still has a Stealing the Numbers a balance. At that time, the card can balance. The employee switches the be used via the Internet, catalog or card with a zero balance card lying by Replicate (Clone) the card: Like credit manually keyed into a point of sale the register. The customer leaves with a cards, some organized thieves will get by the employee. The number can zero balance card, and the employee their hands on the gift cards (collusion also be sold to others in the takes the customer’s original card with with employees) and replicate gift card “underworld” to use via the same the remaining balance. Next time your “mag” stripes, thereby making a duplicate means. customer comes back they will not be of the gift card. Using it or selling it happy to learn they have a card with No quickly, the card gets into play and the Fraudulent Acquisition of Gift Balance! (While the employee uses the first to use it is normally the thief. Other Cards active card). known incidents include “customers” stealing blank cards off display, taking For many, purchasing gift cards via Laundering: An employee rings the them out of the store, cloning the cards stolen credit cards or bad checks may purchase of a gift card on register #1 for and then returning the original cards to be considered gift card fraud; $100. They complete the purchase, but the store. The “customer” then uses an however they are actually acts of do not put any money in the register (no IVR or Web system to continuously credit card and check fraud. Multiple customer is present). They go to register monitor the balance on the cloned card purchases of gift cards in short #2 and purchase two (2) $50 gift cards, until a balance exists (someone periods of time using the same credit using the gift card of $100 as tender. legitimately purchased the cloned card off card or purchasing high dollar valued They then go back to register #1 and display). They (the fraudulent customer) cards with checks or credit cards Post Void the original sale. They now can then use the card immediately after a should be looked at cautiously. have two (2) $50 “clean” gift cards that balance exists. Create restrictions or limits of dollar they paid nothing for. (Can’t post void a amounts on a gift card to protect gift card sale? What happens in your Take the number off the card: against using fraudulent monies to system if they suspend the original Hopefully happening less and less with purchase cards. Enhancement of your transaction instead? If your gift card the enhancements made to gift cards, but reporting to quickly detect multiple activates before tender, you may want there are cards out there with printed purchases using similar tenders to check this out!) numbers on the card. Primarily used for should also be considered.
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